Update 8 July – After this post is published some readers wrote in to say that the information contained in this post is not entirely correct. I wrote a follow up post to explain. Please read about it here.
Last week I wrote about how I have started a POSBank Invest-Saver plan for my kids. Every month the bank will make an automatic deduction from the account a fixed amount I specified. The money will go towards purchasing the Nikko AM STI ETF.
After the article was published, I received questions from readers and friends alike.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
There was someone who asked why did I choose to invest in the STI ETF and not invest the money using BigFatPurse’s CNAV approach. A friend after reading suggested that the 200k figure will be insufficient for my kid’s university education in 2035. Another reader wrote in to find out more about other regular savings cum investing plans being offered. I promised that I will provide some clarification in my next post. So here they are.
Financial Education from the very beginning
There are two reasons why I wanted to start the Invest-Saver plan with my children. Firstly of course it is to save, invest and grow their money from a very young age.
But more importantly I wanted them to take and feel ownership of their own finances. I wanted this to be an exercise in money management and financial planning more than anything else. I want them to understand the concept of money and how it compounds over time.
I wanted them to learn about stocks and shares and the beauty of diversification. In time to come they will also experience pain and heartache when their portfolio suffers in a market correction or crash.
To achieve all these I needed them to be in no doubt that it is their own money and not mine. Their name has to be on the investment account. The segregation must be crystal clear. That symbolism is powerful, and for this entire exercise to succeed, that component is non-negotiable.
Of course I could do the entire exercise on paper, but it will never be the same. To quote Benjamin Franklin
Show me and I will forget. Teach me and I may remember. Involve me and I learn.
Minimum CDP Account Opening Age
Unfortunately, the minimum age for someone to open a CDP account is 18 years. This is the case even for joint CDP accounts. I had visited CDP at Bouna Vista to explore ways of allowing my kids to have the stocks under their own names in one way or another. There is no solution for that. (If you know of a way drop me a mail thanks!)
Given the circumstances, the best I could do was to start the Invest-Saver Plan for them. This effectively rules out investing in CNAV stocks. Investing in the STI ETF is not the perfect solution but an acceptable enough compromise.
University Education – How much is enough?
Another friend left me this message about university education. He suggested that at the rate I am going, it is just about enough for their local university education expenses (highly subsidised by the government) and hardly sufficient should they want to go overseas to study.
According to an AIA study he shared, in the year 2035 the cost of a tertiary education will range from 178k in Singapore to over half a million singapore dollars including living expenses for an education in the USA.
So I went back to re-read my article. Interestingly, I have made no mention at all about university education. In fact, paying for a formal education was the last thing on my mind when we first decided to set up the accounts. I say this for two reasons.
1. The accounts are about ownership and maturity and money lessons. To me, these are much more important lessons in life. These are things that school does not teach. Yet, they will pave the way for my kids to be functional adults in a capitalistic society. Something a formal education can never provide.
2. A formal education and good qualifications is a great social leveler during our parent’s time. They are essential to landing a good job and providing financial security for our family. Financial security addresses our physiological and safety needs. They propel our parents up the Maslow Hierarchy of Needs pretty quick.
Maslow’s Hierarchy of Needs
Now as our society progresses and gets more and more affluent, our kids are inserted right in the middle of the hierarchy. They no longer have to worry about physiological or safety needs, but move on very quickly to the higher level needs of love and belonging, esteem and self actualisation.
In fact we do not even have to wait for our kid’s generation to come of age to feel the effect of this. Look around you, I am sure you will know of someone who quit high paying jobs to travel, pursue their passion or even start their own businesses. This is higher level needs at work.
So to insist that my kids complete their formal education for the sake of financial security which will give them food on the table and a roof over their heads is but a massive regression. It will lead them to addressing lower level needs than what they should be. It could potentially lead to years of distress and an unfulfiling existence. I do not wish that on anyone, much less my own kids.
For the record, I do not discourage from pursuing higher formal education. Neither will I go out of the way to insist that they complete it. The money is in their name and whether they choose to spend it on education or not. It is their call to make.
(To digress slightly, no discussions on the viability of a tertiary education is complete without involving Christopher Ng from Tree of Prosperity. Now Chris is
the biggest troll ever a damn interesting chap and if there is one finance blogger I have to choose to be stuck in an elevator with, it would be him hands down. He also has some extremely unorthodox views on uni education. Go to him and get your mind stretched on this matter).
Monthly Investment Plans
Alvin has written about the monthly investment plans previously. He compares between POSBank, OCBC and Phillips Securities (POEMS) and concludes that the POEMS plan is preferred.
Maybank Kim Eng has also recently started a Monthly Investment Plan. WIth attractive rebates, the commission is reduced to almost zero. You can read more about it here.
Unfortunately minors are not allowed to open a brokerage account and hence if you are planning to invest for your kids in their names, both the Maybank and POEMS options are not applicable. (Edit 8 July – POEMS does have a Junior Share Builder Plan for minors. Find out more here and here).
As more people see the benefits of a regular savings cum investment plan in ETFs, more and more products will come onto the market. I believe the best thing to do is not to wait for the best deal to come along or to analyse and compare each plan to the minutest of detail (and end up confused and not doing anything). The best action a parent investor can take is to sign up and set up a plan right now and let time compound your returns.
Parenting is like investing.
An investor can pick good stocks to buy. He can decide when to buy or sell based on technical indicators. What he cannot control is the outcome. Even if he buys the best stock at the most opportune time, the stock might still decline after his purchase. In investing, one can control the process but never the outcome.
It is the same with parenting. One can give the child the most loving environment and the best support. That is the process of parenting which we all strive to achieve. Unfortunately we will never be able to dictate how the child turns out eventually. The outcome, like in investing, is way beyond our control.
I can only hope that my little kids, like my stocks, turn out well!