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The Baby Bonus Scheme, which was introduced on 1 April 2001, aims to support parents decision to have more babies by alleviating the financial costs of raising children. The scheme comprises two components – a cash gift and a Child Development Account (CDA).
As part of the Marriage and Parenthood Package 2013, the total cash gift for children born on or after 26 August 2012 has been increased and the payment schedule shortened.
Couples are given a cash gift of up to $6,000 each for their 1st and 2nd. This gift is paid out in 3 installments over 12 months from the child’s birth date, with the aim of helping parents defray early child rearing expenses.
The CDA is a special savings account that parents can open at any OCBC Bank or Standard Chartered Bank branch if their child meets the eligibility criteria. Over the child’s first 12 years, parents can pump in some savings to this account; these savings will be matched dollar-for-dollar up to the cap of $6,000 each for the first and second child, $12,000 each for the third and fourth child and $18,000 each for the fifth and subsequent child. The savings in the CDA may be used to pay certain expenses for children at a list of Ministry of Social and Family Development (MSF) approved institutions. The money can also be taken out to pay for MediShield or Medisave-approved private integrated plans for these children.
On paper, it looks very good indeed.
But in real life, some are not so enthusiastic about this government incentive to have more children, and express skepticism about its actual benefit to parents, citing various limitations outlined below.
- The scheme assumes responsible, financial savvy parents
The cash gift of $6000 may go a long way or last mere months, depending on the choices made by the child’s parents. Some may leave it in the bank for a rainy day. Others may draw out the money early on to get big ticket items for baby. There are those who may not even spend the money on the child per se, but on other family needs. And, some may, wisely or foolishly, choose to park the money in trust funds, investments or insurance policies. When in doubt, always speak to a professional and trusted financial advisor.
- CDA only covers a small percentage of a child’s total educational expenses
Typically, half a day of childcare (7am to 1pm) costs around $400 – $1,200 a month while full-day childcare (7am to 5:30pm) can set you back you about SGD 500-1,500. Even if your child stays home till kindergarten, most kindergartens will charge you $120 – $400 a month, which works out to about $1440 – $4800 in the first year alone! Suddenly, that $6-12K in the bank doesn’t seem so huge after all…
- CDA assumes that parents have sufficient capital to save in the first place
In order for the government to put money into your CDA, you need to have money in there first. However, not all families may be able to park a few thousand dollars into the account. Especially if you have elderly parents to support, housing loans to pay, and a lack of pre-existent savings to dip into.
- Money may not be what most parents need
Indeed, many of us do not choose to be parents if we don’t feel ready for it, especially financially. Of course, we’d all appreciate the extra cash, but what we’d really like is a little understanding and care, more time with our families, less late nights, and a lot more emotional support as new parents. Would you agree?
Nonetheless, while the Baby Bonus Scheme may indeed have its blind spots or shortfalls, there’s no denying that it has eased the financial strain of having bigger families.
As to whether or not the incentives are sufficient or appropriate for motivating couples to have more children – well, that remains a whole other topic to be explored.
By Dorothea Chow
What are your thoughts on this? Share them with us!
My daughter is been diagnosed with “Down’s Syndrome.” What is your financial advice for me to ensure that I have enough financial resources to provide for her after my spouse and I have passed on?
MSN (Mom with Special Needs)
I can understand the need for you to plan for your daughter. Many parents will be focusing on building up wealth to provide for their child with special needs, should their children outlive them.
There are 2 options that you can consider:
1st option (investment strategy)
This is the most common method.
For investment portfolio strategy, parents can choose to invest in a various mix of asset classes. From real estate, shares to unit trust. However, we cannot be making the right investment decision all the time. The timing of when parents choose to withdraw their investment, also determine the amount left for their child because of market condition.
2nd Option (Insurance proceed strategy)
This strategy is considered simpler. Parent’s can simply insure their own lives, so that when they passed on. The amount from their insurance proceed will be given to their beneficiaries. The only drawback, is the commitment to the insurance premium.
Creating a Trust
Consider using a Trust company to manage your funds, after you had passed on. A Trust company is a corporation who administers financial assets on behalf of another.
There are private companies who provide such services and our government also help set up a Trust company, specially just for parents who has the intend to provide financial assistance to their children. For more info: www.specialneedstrust.org.sg
When creating a Trust, parent’s should be mindful of the various cost of setting up a Trust. The higher the cost, the faster your funds will be depleted. If you do not need a very complicated Trust. You can use your existing or any future insurance policies to set up a simple Insurance Trust. It is of no cost; however, you will need to find a Trustee who, you believe can fulfill your wishes, unlike a Trust company who manages your funds as part of the company’s services.
For creation of Insurance Trust, go to Life Insurance Association Singapore (LIA) for more info: www.lia.org.sg
Which Strategy Should I Choose?
You should consider both as an option. Have a balance view. You may wish to mix both strategy together, taking advantage of the market condition (Strategy 1) and the advantage of creating a tax free and worry free estate (Strategy 2) for your love ones.
Do you have question for our experts? If you have, please go to our Ask The Experts section for financial advice.
About the Author
Guru Foo, has a BSc in Accounting & Finance. Was a Priority Banker in a leading off-shore bank. He now educates the public about personal finance. He is completing his Certified Financial Planner (CFPTM) soon. Read more on his blog: YourMoneyGuru.livejournal.com or email email@example.com
I understand that children get hospitalized often when they are young. I’m thinking if I should get hospitalization insurance plans for them, since I have the option to extend my company group insurance to my family.
Angeline, it is wise of you to know that the probability of children getting hospitalized in their younger days are higher. It’s just like how I will advise my clients: “Which will you rather pay? Insurance premium or hospital bills?”
It is wise of you to opt for your company group insurance extended to your family as you can enjoy coverage at a group rate. Do find out if your company hospitalization insurance is portable. If it is non-portable, it means that you and your family will not able to enjoy the coverage once you leave your company and by then, some of you and your family may have experienced changes in your health and will become not insurable.
If it is non portable, do consider taking up some form of individual insurance coverage.
As Guru Foo has mentioned, having a portable insurance is more important than an affordable insurance, because if it is not portable, it only gives you a sense of false security that you are protected. But once you are not the employee of the company, all your coverage is lost.
Since the liberalization of our Medisave account in Singapore, many insurers are providing child hospitalization insurance plans at an affordable premium payable via Medisave. One of the insurers even provide free coverage till the child turns 20. All the insurers have the option to add a rider payable by cash if you feel that the basic plan is insufficient. It is important that you have a comprehensive and portable medical plan that you truly own.
About the Authors
Guru Ed, has achieved both BSc(Hon) Computing & Information System and Diploma in Banking & Finance.
He is a strong believer in living a balance lifestyle. Other than spending quality time with his 3 lovely children, playing basketball and participating in mini marathon is something that he enjoys. He had 6 years of finance industry related experience.
Guru Foo, has a BSc in Accounting & Finance. Previously, working as a Priority Banker in a leading off-shore bank He is passionate about educating the public about personal finance. Currently, he is in the process of completing his Certified Financial Planner (CFPTM). He is an animal lover and avid runner who participate in Singapore Standard Chartered run yearly. He currently runs his Wealth Management Practice.
You can read about him on his blog: YourMoneyGuru.livejournal.com. You can contact him at firstname.lastname@example.org
How can I teach my children to be prudent about money?
Mummy knows Best
Thank you for asking! It’s my area of expertise! Having 3 young children of my own, it has always be an area of concern for me.
Firstly,for some saving money tips, take them to a bank to open their own savings account.
Secondly, ensure you bring them to a place to choose their own “piggy bank” to ensure that they have an ownership.
Lastly, lead by example, make sure you as a parent also save at least 10% of your income, showing them that you can save too!
If your children is of a very young age whereby “money” is nothing has no meaning to them, then , you may wish to consider what Guru Ed has suggested. Inculcate to them, the value of money by starting a saving habit.
If your children already have the ability to count their money, then you may want to start them off with a budget.
On top of that, you can also consider teaching them about making money, for example, making handy crafts to sell to make some pocket money for themselves.
With the money, perhaps you can teach them about value of money, like giving it to charity to help others in need or to save it to buy things that they want rather than to ask for it. Earn it, not ask it.
Dear Money Gurus, I’m a mother of another new born. Currently, my insurance advisor is telling me to start a Life Insurance plan for both of my boys. But since the birth of my new born, I do not have a lot of spare cash now. What are your advise?
Congratulations! I can understand why you are at a cross road now. Money is never enough. Should you start a life insurance policy for your child? I will suggest that you may wish to consider a education endowment plan instead. Such plan will generate an average of 2.75% – 3% p.a of returns which is far better than to put it in the bank.
With a rider of waiver of premium, you can be assured of your little boys education, should any unforeseen circumstances happen to either of the parents. Budget within you r own means. Start small, rather than not to start at all.
Dear Cashless Mom, you are not alone in this situation. Many young parents do go through the same phase. May I ask what your priorities are for your children? Providing coverage for them while they are young or building up their education funds?
Major mistake for parents is to start buying insurance policies for children, while neglecting their own coverage. Remember, parents are the money making machine. It should be protected 1st. Perhaps, you can start a simple SAVE-AS-YOU-EARN scheme, until you are comfortable with your finances, then you can consider to start either a life policy or saving plan, according to your priority then. The key is to start the habit of saving and protect the potential income of your family.