Children Can Teach You About Money

28 September 2018

In the recent Straits Times article, “How to nudge couples to have more kids” (26 Sep 2018), a definitive study by an NUS professor and actuarial data analyst revealed that it would cost a median-income woman S$560,000 (in today’s dollars) to raise her first child in Singapore. Tax savings and subsidies enjoyed over the child-rearing period would come up to only $50,467, or 9% of the total cost of raising a child.

If the woman was a high-earner at the 70th income percentile, it would cost her S$640,000 to raise her first child, with tax savings and subsidies over the child-rearing period coming up to $68,000, or 11% of the total cost. Both scenarios assume the child is smart enough to qualify for a local tertiary institution and not an overseas one, which would dramatically increase the total cost.

A Google search will only confirm that raising children is expensive. Costs can range anywhere from $200,000 to close to $1,000,000. Where you fall on that spectrum depends on the essentials and services that you choose for your child. Cheap or expensive diapers? Basic daycare or Montessori? Should you get the latest iPhone, or give them a hand-me-down?

The fact of the matter is that having children forces you to prioritise how you spend your money. No longer can you freely splurge on a new dress from Vera Wang, Prada’s latest Vela bag, or a Honma golf set. You will inevitably have much less time to think about yourself and going out, so spending less on yourself may almost come naturally. A younger version of yourself might have hated staying at home on weekends, but now, sinking into the sofa on a Sunday night without any crying or shrieking babies can be so cathartic.

Here are some ways having children helps – let me rephrase that – forces you to rethink how you manage your money.

1. Getting Your Financial House In Order: Most people are extremely poor at this and live from paycheque to paycheque. Once you start to realise that you have to spend a lot on kid-related stuff, you would be forced to budget your spending to make sure that your precious little ones get everything they need.
2. Automating Your Budget Really Helps: It’s easy to forget or oversee bills or payments when your entire day is spent running after your kids. Avoid late payment fees or fines by putting all your bills on an automated scheduled payment system, like GIRO, or setting up standing instructions. In addition, this enables you to check all your transactions online through phone apps, which helps you both save time and watch your budget.
3. Utilise The Power of Compounding: You already know how much it costs to raise a child. Throw in university fees and the associated living expenses and that number goes up even more. Don’t wait until its too late to start saving up for the big ticket items (like overseas education). Far too many parents have sacrificed their retirement savings or even downgraded their living space just so they could give their children that additional head start in life. Investing even small amounts from when your child is born will let you utilise the power of compounding to generate the returns necessary to fund their tertiary education. In addition, you could also automate this investment into monthly or quarterly bite-sized amounts through a Regular Savings Program.
4. Some Things Can Be Free: Do you really need to spend $500 on that car seat or that new designer carbon fibre lightweight pram with built-in iPad holder? If you ask friends and family members who have children, you will likely find some who could pass you things which their children no longer need. After all, children grow up very fast, and don’t really wear out some of the things they use. Unless you are really picky about getting brand new items, save yourself some money and ask (beg, if necessary) for second-hand items. Also, read up and ask about government subsidies, as our country’s declining birth rate has spawned several schemes to help families cope with child-rearing expenses.
5. Some Things Can Be Free, Part 2: Sure, spending on experiences like trips to the zoo, theme parks or even cable car rides are great photo opportunities to remember those moments by, but young children can actually be relatively easy to please. Playing in a 2 square metre enclosure with a heap of torn paper is just as exciting for them as touching a live giraffe. An enjoyable day for them need not necessarily cost a lot of money. A bit of imagination and creativity is all it takes!
6. Time is Money: In the past you might have been unwilling to pay for services such as laundry, housekeeping or even financial services, as you had all the time in the world and were capable of handling it yourself. But saving even a few minutes to spend with the family (or even catch up on lost sleep) can be so valuable that you may find yourself outsourcing all these activities just to steal some time.

Ultimately, starting and raising a family brings great intangible benefits, and should not be predicated solely on financial terms. Nonetheless, being prudent and smart with your finances will definitely help reduce the stresses associated with child-rearing, and thereby amplify the more joyful moments and memories!

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