Money for your honeys
How to best prepare for your kids’ future
When I became a mom, there was, all of a sudden, a million more things I had to think about for my children. I had to think about how today will go about—bathing them, feeding them, bringing them to school, playing with them, and talking to them. As if the daily grind is not overwhelming as it is, we, parents, also have to think about their future, and so we invest in the best health care and best education for them. Two investments you can get into would be an insurance policy and an investment fund for your children.
An insurance policy is a must-have nowadays. In my book Money Grows on Trees, I recommended locking down an insurance policy before investing anywhere else. Good healthcare is a primary need nowadays, so prioritize insurance in the same way you prioritize paying for your mobile phone subscription every month. How much you’ll have to shell out will depend largely on the policy and payment scheme of your choice. There are different kinds of insurance you can get for your children—health insurance, critical illness insurance, and life insurance. Imagine having to deal with your child’s illness and at the same time overwhelm yourself with where to source your funds to pay for medicines and hospitalization.
Insurance, for me, equates to peace of mind. I would never want to use it but in the event that I need it, I know it’s going to be a big help. The younger your child is upon securing insurance, the cheaper the policy is, because they are considered less likely to use it. That’s a huge advantage of investing in an insurance policy as early as you can.
INSURANCE POLICIES YOU NEED
Health insurance comes in handy when your child gets sick. This covers your child’s medical and surgical expenses. Nowadays, you can get this while your child is only a few weeks old. When they are a little older, like when they’re 18, you can also get them a Critical Illness insurance. This covers them for the more serious diseases usually specified in a predetermined list of an insurance company. Usually, people (not just parents) miss the importance of securing this at an early age because we think we’re invincible when we are young. Insurance, however, is best acquired exactly when you don’t need for it yet. Lastly, there’s life insurance or insurance that pays out a sum of money either on the death of the insured person or after a set period. My good friend,
Jon Pineda, an expert in this subject, once told me that by getting your children life insurance, you end up protecting your future grandchildren. How cool is that! Or if a huge need arises, your children can utilize this after a period of time, too.
And then there are investment funds—for our children, we usually label these as college fund or trust fund, basically what the objective or goal we put behind our “why.”
One way of looking at this is having your money now grow itself for the next 18 years enough to fund your child’s college education. You can work on this goal backward. Say, a decent college education of four years nowadays would be around R600,000. Eighteen years from now, it will probably be around R2 million.
What you can do is invest around R50,000 to R100,000 every year for the next 10 years or R120,000 to R200,000 every year for the next five years and have this investment pay for their R2 million college degree. These figures are arbitrary and can vary depending on your financial plan.
A trust fund, on the other hand, is a fund comprised of different assets that can be endowed to your children under specific terms such as an age of the child you as parents or grantors have specified. This is a common gift of to a child or a grandchild nowadays. Similar to the example above, a R5,000 to R8,000 monthly contribution may grow up to R2 million 18 to 20 years from now. (These figures are not cast in stone and can vary depending on market conditions.)
There is a lot of flexibility attached to these kinds of plans nowadays. As another expert friend, Ariel Manalac, would say, you can create a financial plan for your children based on what you want as well as what you can afford. Learn about them so you know what option works for you best. My advice is to contact a financial planner, discuss with them your goals, so they can give you an idea how you can work around your numbers.
TEACH THEM HOW TO FISH
Now, it’s one thing to give your children fish, and another thing to teach them how to fish. For me, the best investment you can give them is education—teaching them about money and instilling in them good money habits.
We are usually taught good study habits growing up, but not good money habits. Why is that? As you work around your financial plans for your children, involve them. As you are educating yourself on available options, educate them, too, and learn together. You may bring them along your meetings with financial planners or discuss with them how money can work for them as you have learned from your meetings. Discuss together how you can save as a family and how they, when they start earning money, can continue contributing for their future. Teach them the value of delayed gratification. You are making an investment for the long term because you are going to reap the benefits of what you sow now. In my book I Wish They Taught Money in School, I shared some personal childhood stories on how my parents raised us with money consciousness and money values that became the backbone of my money habits right now. Let’s make teaching good money habits a norm.
Many parents are too busy and just do not have the time to think about financial planning. I know this because I speak for myself and my husband. But make time, make their financial future a priority. Sit down as parents and discuss what your financial plans are for your children (not just for the far future, but also for their immediate needs like health care). An investment is always worth it.
I wouldn’t have written this article without consulting my expert friends, Jon Pineda and Ariel Mañalac. If you would like to create a financial plan for your children, you may get in touch with them:
Ariel Mañalac: +639153340175 or arielmanalac@gmail.com
Jon Pineda: +639175333461 or jon_ pineda@manulife.com.ph
Clarissa Seriña-de la Paz is a financial literacy advocate and the author of two personal finance books, I Wish They Taught Money in School and Money Grows on Trees. These books are available at leading bookstores as well as from the online store www.lifestyleupgrade101.com.