Having a baby is a wonderful experience but it is also a big financial responsibility. A baby put a serious strain on budgets. Whether it’s admission at pre-school or a prestigious university, a wedding or downpayment on a first car, the cost of raising a child is becoming ever-more expensive.
GN Focus speaks to the experts to offer tips on how to handle your money prudently and secure your child’s future.
Newborn parents
With the arrival of a baby in the family, daily expenses can rise significantly. Formula milk and diapers give way to school fees, books and other serious financial loads. It may feel too early to think about finances, but planning for the education and development of your child must start after he or she is born. The sooner you start saving, the more time your money has to grow. Assessing your risk appetite, you can opt for a financial plan that takes care of all your needs, from the short-term, such as school fees, to the long-term, such as a wedding.
Medical insurance
You must include your child on your medical insurance plan. This plan must offer comprehensive coverage, and not simply a basic one.
Systematic savings
Sandra Saksena, Sales Manager, Nexus Insurance Brokers, a leading financial advisory firm in the region, says, “Assuming that your employer will not cover your children’s school fees, you must start a systematic savings plan as you have just three-to-five years until you will need this money.”
Bonds
Buying high-yielding bonds that mature at specific time intervals is a great way to ensure a predetermined amount will be available to cover all your needs.
Parents can opt for bond laddering to minimise risks associated with interest rates by holding both short-term and long-term bonds. “Laddering is a popular strategy that takes the guesswork out of bond investing. It involves buying several bonds that mature at regular intervals such as three or seven years,” explains Saksena.
Banks in the UAE offer savings plans that can help you create a cash cushion for both short-term needs and long-term financial obligations. Noor Bank’s savings solution, Smart Save, caters to long-term needs such as a wedding or business start-up. In this plan, the tenure is from five to 20 years. Renoy Kundukulam, Head of Priority Banking, Noor Bank, says, “If you do not have an end-utilisation in mind, Smart Save can also be converted into a pension plan that generates fixed monthly returns throughout your lifetime.
“For short-term needs, customers can invest in sukuk and capital-protected structured notes that are designed to generate fixed returns every three-to-six months,” he says.
Middle school parents
If you haven’t already started saving for your child and they are now in middle school (11 years-plus), you will have to bridge a gap. You will need to save much more than if you had started when they were born.
Low-risk plans
Natalie Storey, Senior Financial Planner, Acuma, a financial planning solutions provider, says, “As you only have seven years till they reach university age, it is urgent that you start an education saving plan. Structuring your saving on a monthly basis is critical to achieving end goals for your child’s future.” Saksena says, “Stay away from high-risk high-reward investment vehicles; opt for a low-risk strategy comprising more bonds than stock or real estate.”
Senior school parents
If you’ve already saved for higher education, you can start drawing the funds on a monthly basis or a lump-sum to pay for university admission. “The fund at this stage should be easily accessible and invested in low-risk funds to meet needs for the coming three-to-four years,” says Storey.
Short-term funds or fixed deposits
Consider short-term or rolling fixed-deposit options to generate income. “Look at investments for income and
liquidity — these provide moderate growth without sacrificing stability and liquidity. They can be timed to mature when tuition fees are due,” says Saksena.
Systematic investment
Systematic investment plans include the option to remain invested beyond the maturity date, as well as partial withdrawals. Saksena says, “You must look at a conservative investment strategy at this stage.”
