Family planning hinges on financial stability

Your Money: Family planning hinges on financial stability
By Yap Ming Hui

2008/11/01

AS a financial planner, I have seen many clients’ financial planning position greatly influenced by their family planning, that is, having children: how many, how frequent, how early and so on. Some clients plan the family carefully to match their financial planning. There are some whose financial planning position suffered due to their poor or lack of family planning.

In this article, I will look into the various aspects of family planning and how they affect one’s financial position.

How many children to have? There are some who love children; the more the merrier. Some of them talk about having as many as six children. The financial planning implications of having more children are obvious. The more children you have, the more financial resources need to be allocated to address their needs.

Nowadays, raising a child is not cheap. The expenses, other than feeding, include healthcare, medical expenses, pre-school mental development, clothing, private school fees, tuition fees, hobbies and leisure and many others.

As a result, more financial resources must be allocated for children’s maintenance and education. Hence you have less resources for other financial objectives, especially for your retirement planning.

Alternatively, you may limit your financial allocation for the children. Then, the financial resources allocated for each child would be diluted.

The third alternative is to work harder to accumulate more money.

Those who have more children would enjoy a merrier family life. This is especially important when one gets older. The atmosphere during festive occasion is much merrier with six children compared with one. You can also expect more financial support when you are retired, if necessary.

For those who choose to have a small family, you can channel more financial resources to your children.

The rule of the game is quality rather than quantity. At the same time, you can expect less financial burden from your children. However, you must be prepared to live a retirement life with less children for company.

How frequent to have children? Some people prefer to have children close to each other so the age difference between the children is small. Some would prefer to space out their children. There are advantages and disadvantages for both types of family planning.

In the first case, the couple have the advantage of finishing their duty as parents early.

For example, if you are married at the age of 28 and have your first child at 29, second at 30 and the third at 31, by the time your first child is 18 and ready to go to tertiary education, you are 47.

If he or she takes four year to complete the tertiary education, you will be 51 by the time your first child graduates from college and may not financially be dependent on you anymore.

By the time your last child reaches 18, you will be 49.

When the child graduates, you are only 53.

As a result, such a family planning allows you to enjoy your retirement with peace of mind. You do not have to worry about the cash flow needed to support your children’s tertiary education when you stop earning active income.

But everything comes with a price. This type of family planning will relatively give you more financial stress.

From financial planning point of view, you would have three series of cash flow overlapping each other.

Using the example of tertiary education expenses that stretch over a period of four years, by the time your third child enters college, your first and second child is still in college.

If each of the child’s annual tertiary education expenses is RM50,000, then you would have a total of RM150,000 (3 child x RM50,000) cash flow needs to meet in that year.

If you intend to have such family planning, it is important that you are aware and prepared for such financial challenges.

In the case of a couple planning to have their children’s age relatively farther, they have the advantage of performing their duty as parents in a less stressful manner.

For example, you are married at the age of 28. If you have your first child at 29, second at 33 and the third at 37, then by the time your first child is 18 and ready for tertiary education, you are 47.

You would be 51 by the time your first child graduates from college.

Your second child will only enter the college after your first child has graduated from the college and is not financially dependent on you.

Your second child will graduate when you are 55.

Only then your third child would start his or her tertiary education. By having this type of financial planning, you can space out your cash flow need so that it does not overlap each oth e r.

If your budget for each child’s annual tertiary education expense is RM50,000, you only need to plan for a cash flow need of RM50,000 in a year instead of RM150,000 as in the first scenario.

However, this type of family planning would require you to continue financing the children’s tertiary education expenses after 55. Using the same example, your third child would only complete his or her education when you are 58.

If you stop earning active income after 55, you will still need to worry about financial sources to fund the child’s education. As a result, you may not have complete peace of mind even though your have retired.

There is no perfect family planning from financial planning point of view. There are advantages and disadvantages under various alternatives. It is important for you to be aware of the different financial planning implications for different family planning.

You must search your soul and ask yourself which scenario you are comfortable with.

The worst case is letting your family planning take its natural course and not knowing its implications on your financial planning.


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