How do you know if you’re financially ready to have a child? And if you are, what are some goals you should have as a parent? Raising a child in Malaysia can be expensive and this is why it is important for all parents to have their own family financial planning. This article explains 9 essential money moves every parent should know and how you can expect to manage your future finances. Read more to find out.

No job is as difficult as being a parent – the amount of love, time, dedication and sacrifice parents make for their children can’t be exchanged with anything else in the world.

The journey to parenthood is a long and winding road, full of surprises and bumps, much like how children are learning to navigate life as they grow older, parents too, develop and learn new things about themselves and others as they grow in their roles.

And though all parents want to be the best that they can be for their children, oftentimes they are not sure how to balance between financial commitments, responsibilities, fulfilling the needs of their children, other family members and their own.

It takes careful family financial planning to ensure that money does not end up being a form of stressors to the members.

As an adult looking back and based on some research online, here are some of the nine financial moves we feel every parent should do to ensure a brighter and more financially-secure future, for themselves and their children.

1. For yourself – consider whether starting a family or having more children is actually right for you

Family financial planning begins before conception.

Whether you are considering starting a family or hoping to add another little one, the addition of another human being into the household will mark the start of a significant change in your finance and lifestyle. So, ask yourself several big questions before you decide if it’s the right move.

“Do I have enough money to raise another child?”

“Do I have enough time to raise another child?”

“How do I balance the child with my other commitments?” 

Let’s face it, raising a child is expensive! Latest estimates from AIA reveal that the total cost of raising a child in Malaysia lies between RM 400,000 to RM 1.1million, with the costs depending on various factors at different stages of life – on top of that the needs of your child at birth will be different to when they enter pre-school and then college.

Childcare, basic necessities, and type of education (state vs private schooling to local and international university costs), are just some of the many costs that parents have to bear for their children.

Related: The Cost of Raising A Child In Malaysia

Whether you are new parents or are seasoned and considering your next child, you should consider these few important questions before saying yes.

Your finances – Can you afford it? Similar to other big commitments in life (buying a house or a car), having children can be costly, too. So make sure you have enough money to raise the child before even considering it.

Your relationship – How long did you have to think about committing to your partner? Similarly, you should also assess whether you are ready to commit to raising a child with your partner for the next 30 years or so – that’s a long time!

Your health and well-being – Speak to your doctor to discuss any possible underlying health conditions before attempting to get pregnant, especially because pregnancy takes a huge toll on the body both physically and mentally. As parents, the needs of your children will take over your own most of the time, therefore it is crucial for both partners to assess whether both of you are in the right health condition – physical, mental and emotional – to become parents.

The proper space – Generally having children will require more space, so it’s important to consider how this will affect your living arrangements. If a larger space is needed, do you have the finances to accommodate such changes?

If you realize you’re not in the best position to start a family, then don’t, because giving anything less to the people you love would only make you feel unhappy in the long-term.

Get a cat or a puppy instead! Or you could just delay plans to have a family or additional children if the circumstances just don’t permit.

2. Have your children start investing young

American billionaire and Berkshire Hathaway CEO Warren Buffett started his first “business” when he was just five years-old, and he purchased his first stock when he was 11 years-old. Today, he is worth around $70 billion and is known as one of the most successful investors of all time.

Of course, the goal isn’t to create the next Warren Buffet, because that’s too much pressure for anyone really. But ultimately, we too, can learn a thing or two from Buffet.

Help your child understand the concept of investment by explaining it in simple terms – investing means spending money in the hopes of making more money. For example, they can earn small returns when they deposit money into a savings account.

That leads us to the second point from this factor, help your child open a simple savings account so they can learn the art of savings and investment. Encourage them to save a portion of everything they help out with like chores, part time jobs etc. – if you are a believer of this concept.

When they are slightly older, then they can move on to more complex ways of investing, like investing in unit trusts or mutual funds, for example.

Our reader Lena, 26, a chemical engineer at a global MNC, is definitely reaping the benefits of investing young, too. Thanks to her financially savvy father, who helped his children understand the importance of saving and investing early on, she was able to grow her ASB funds by 650% over the years.

She told us she had opened an Amanah Saham Bumiputera (ASB) account as soon as she had turned 12 years old (the minimum age for ASB used to be 12, now it’s 6 months). “In hindsight, I only realized how lucky I was 15 years later. Back then, I was taught to put my money in there (ASB) little by little,” she said. “My dad also invested in medical insurance and education for both of my sisters, but at that point I was a bit too old to invest in!”

Had her father not been compelled to save up for his children, she wouldn’t be able to have the amount of savings she has today, which has helped her pay off her scholarship/education loans. She hopes to be debt free by 30.

ASB is a unit trust fund aimed at providing an alternative savings vehicle for Malaysian Bumiputeras by generating long term, consistent and competitive returns for investors. Amanah Saham Nasional Berhad (ASNB) also offers unit trust funds for both bumi and non-bumis via the Amanah Saham Malaysia schemes .

Related: Amanah Saham Bumiputera 2: Investment For Gen-Y In Malaysia?

Therefore, from this anecdote it is imperative that parents commit to the future of their children very early on, because it can make a huge difference to them, 20 years down the road.

Though it’s not possible for smaller kids to invest in other low-risk investments such as unit trusts, Real Estate Investment Trust (REITs) or Exchange Traded Bonds and Sukuk (ETBS) yet, it’s good practice for parents to educate them on it while also simultaneously trying it out themselves.

3. Start saving for your child’s college tuition as early as possible

The student loan debt dilemma? In 2019, it was reported that unpaid student loans, via the National Higher Education Fund Corp (PTPTN), amounted to RM39 billion.

All families want the best education for their children, be it public or private, but saving for your child’s education is undoubtedly a daunting task. 

According to the UK-based Varkey Foundation, 75% of Malaysian parents still place heavy emphasis on their children entering university.

But rising college tuition costs and fees have left parents and their children wondering if they can ever save enough money to avoid significant debt post graduation. Nobody wants to start their career with a huge sum of debt hanging over their heads.

Though there isn’t a set method of doing this, a good place to start for parents is to combine both savings and investments into a fund.

The most basic way to start saving for your child’s education is to dedicate a certain sum of your paycheck to their education savings account, essentially a standard savings account, each month. As your child ages, gradually scale up the amount you save each month. Parents may also consider accounts that come with high-interest rates.

To help estimate the cost of education, try this very useful Child Education Fund calculator we found on Great Eastern’s website. We tried it out and here are the results!

Assumed child age: 7-years-old
Assumed age for commencement of higher education: 22-years-old
Country of education: United States of America

The estimated total cost of college in the following respective countries. (Image source: Great Eastern)

Here the results:

This tool helps you understand how much you need to save for your kid’s higher education. (Image source: Great Eastern) 

The type of investment that parents choose will need to be centred on the time horizon, aka the period an investment is held until its liquidated, of the investment goal, so that parents get to yield enough returns before their child goes off to school.

We read that a mix of volatile assets like stocks and ETFs to complement more conservative investments like bonds and fixed deposits are a feasible mix. Shift your portfolio according to your own time horizon.

Related: Build Your Children’s Education Fund with These Savings Options

Lastly, leverage on tax incentives offered by the government. We’ve compiled some relevant tax reliefs for parents here for your reference:

• A maximum of RM1,000 tax relief for working parents on childcare when sending their children to childcare centres and kindergartens.
  
  
• A maximum of RM2,000 tax relief for each unmarried child of 18 years and above. They must be receiving full-time education (“A-Level”, certificate, matriculation or preparatory courses)
  
  
• A maximum of RM8,000 tax relief for each unmarried child of 18 years and above that is:
  
  (i) receiving further education in Malaysia in respect of an award of diploma or higher (excluding matriculation/preparatory courses)
  
  (ii) receiving further education outside Malaysia in respect of an award of degree or its equivalent (including Master or Doctorate)
  
  (iii) the instruction and educational establishment shall be approved by the relevant government authority
  
  
• A maximum of RM6,000 tax relief for every physically or mentally disabled child in a household, regardless of age. There is also an additional exemption of RM8,000 if the disabled child is aged 18 years old and above, unmarried and currently pursuing a higher education that is accredited by related government authorities.
  
  
• A maximum of RM3,000 tax relief for insurance premium for education or medical benefit including not through salary deduction. This also extends to the taxpayer’s spouse or child.

For a full list of exemptions, check out the full list on Lembaga Hasil Dalam Negeri’s website.

Skim Simpanan Pendidikan Nasional (SSPN)
Also known as the National Education Savings Scheme, this savings plan is specially designed by Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) or the National Higher Education Fund Corporation to enable parents or guardians to invest for their children’s higher education.

The government came up with the scheme to assist parents with their financial obstacles when financing their children’s education, as well as to inculcate the good culture of saving among parents and students. You can also get a tax relief of up to RM6,000 for your net savings in SSPN’s scheme. You can apply for it here.

4. Create a will to protect your child’s future

In the unfortunate event that anything bad happens to you or your partner, it would be good for your children if your estate planning was properly taken care of prior. This is particularly true for minors who don’t have the physical and mental capabilities to take care of themselves without the help of others.

A will would ensure that your child grows up with the appropriate relatives, those who are in line with the values they grew up with, religion, lifestyles etc. It also ensures that they grow with sufficient money to live an almost normal life, where basic necessities are sufficient and don’t become a form of stressor. Lastly, it discards the risk of unwanted people entrusted to manage your children’s inheritance.

All in all, creating a will saves up any potential future nightmare or headache that your children might have to deal with, and won’t make them resent you for it.

Due to the diversity of religion and culture in our country, there’s a stark difference between the governance of a will and wasiat, though they both serve the same purpose of managing a deceased person’s assets after the demise of that person.

Though we won’t get into the nitty gritty, we sum the difference between them in the table below. These are based on information from our references below:

For a better understanding of both, we encourage readers to check out these informative portals:

• as-Salihin
• MyGovernment
• MahWengKwai & Associates 

5. Get an insurance plan for your little one

Protect the future of your little ones by setting them up with a comprehensive insurance plan.

When parents are busy hustling to make ends meet and bear other costs needed to raise a family, they unfortunately tend to overlook the need to hook their child up to a comprehensive insurance plan. But in the long-term, insurance will protect your children.

For instance, some parents may be unsure whether a medical insurance plan is necessary for their children. After all, at their age, a child’s medical needs may be less severe and costly then yours or your parents, right? Not exactly, guys. Medical costs for children could be as expensive as adults.

Related: What Is The Difference Between Life Insurance and Medical Insurance?

Getting medical insurance for your children will help ensure access to quality healthcare at more affordable rates, safeguard your child from common illness and medical conditions, offers more financial protection in case your child does have an emergency, and lastly, insurance tends to be cheaper when your kids are younger because they have the lowest likelihood of using all of their claims.

6. Protect your child’s future by setting up an emergency account for your family

To be clear, emergency funds should not be used for planned purchases, aka any form of purchase that requires proper financial planning, like a house, a car, college education etc.

Ever heard of the phrase: save for a rainy day? Well this is exactly that. And we don’t believe that your savings equate to an emergency fund either.

An emergency fund should be any form of money needed in really bad circumstances that can be used to alleviate the issues faced at that moment right away. We read online that your emergency fund should cover at least 6 months’ worth of expenses.

A useful formula we found on Stashaway’s website. (Image source: StashAway)

Unlike other forms of investments, you will need liquidity in an emergency fund because in the event that you need it, you wouldn’t want to pay a fee or experience delays to be able to get access to your money.

Good options to try from include a savings account, low-risk liquid account that earns interest. We found out that StashAway Simple™ is a relatively good platform for your emergency funds because it has no lock-ups, minimum deposit requirements and other restrictions common in fixed deposits, or high-yield savings accounts.

Having an emergency fund will help keep your mind at ease knowing that you have cash to fall back on in case something awful happens like getting into a bad car accident or losing your job.

Related: #NewNormal: What To Do Immediately After Getting Retrenched Post COVID-19

7. For Muslims, save up enough money for them to perform the Hajj earlier

The average age of Malaysian pilgrims was 52 according to a 2017 survey.

A pillar of Islam, the religion requires all Muslims to perform the hajj, or also known as Haji, at least once in a lifetime.

This physically demanding journey is one that Muslims believe will not only deepen their relationship with God, but also allows pilgrims the chance to wipe clean past sins and start anew. Clearly, it is a big deal for many of our Muslim readers.

The cost of performing hajj varies according to the institution that you signed up with and the type of package you signed up for, but one thing’s for sure, you will need at least RM10,000-RM12,000 to cover all forms of expenses (including miscellaneous ones) to be able to perform the hajj. And that figure is solely if you are going via Tabung Haji.

Bottom line: you’ll need to save up a lot to perform the hajj.

One of our readers, Puan Yati, 32, a mother to five small children who is currently serving as a lecturer at a public university, attests the importance of investing for the Hajj since young.

“Though we don’t have concrete financial goals for the kids yet – since we’re still waiting for our incomes to stabilize – we do try to do several things to secure their future. First, we try to prioritize and get all of our kids registered for Hajj because it’s something we value – any money we get during an aqeeqah, Raya, etc. we’ll channel it straight into Tabung Haji (TH) once it reaches RM1300,” she said.

“Alhamdulillah, currently, four out of our five children are on course to receiving their Hajj turn*. The fifth now has enough cash and is about to register for an account too,” she added.

Turn* : All pilgrims registered under TH will have to wait for their turn to perform the hajj. This even applies to those who have enough cash in their accounts.

“Besides that we also deposit around RM200 for each child monthly (total: RM1000). For now, the focus is on Tabung Haji, after that we plan to open SSPN accounts for all of them,” she said. 

Coming from a middle class family who didn’t inherit much wealth, Puan Yati said she and her husband try as much as they can to save each month, and will revise their plans according to their monthly income.

“As parents, my husband and I try to sustain and maintain the trust of our children’s money. Though we are aware of the need to prepare for their future from now onwards, we try not to stress about it too much, and leave it to the will of God as well – we believe that all things, rizq (sustenance) the good or bad, have already been decreed by God.”

Though it’s possible to start saving for Hajj as an adult, the long queue at TH usually ends up being a major obstacle for many adults – this forces them to opt for private packages which could roughly cost up to RM20,000-RM100,000 per head.

The Tabung Haji Fund’s objective is to help Malaysian Muslims save for the Hajj and Pilgrimage.

It’s 100% shariah compliant, and though it’s not meant to be as profit-focused like other funds, it still gives good dividends to its investors with a typical returns of, based on research, 4-8 % per year.

The cost of performing the Hajj (Source: Tabung Haji website)

NOTE : *Visa payment as enforced by the Government of Saudi Arabia.

If you want to get started, visit any TH branch, Bank Islam, Bank Rakyat, or TH’s mobile counters to open an account.

8. Teach them the value of money

Let your child count how much savings they’ve accumulated at the end of the month so they can understand the importance of saving money.

Understanding how to manage money wouldn’t be possible without first understanding the value behind it.

As far as the writer can remember, we weren’t required to learn about financial literacy in primary or high school (the case might be different today though), so it’s crucial that parents make up for this void by teaching them about it.

The earlier the better, especially because kids are sponges who absorb anything that is close to them. According to the American Psychological Association, kids watch their parents constantly, and learn good and bad behaviors by watching and listening and imitating them. So it’s crucial that you walk the talk and be financially savvy in order to teach your kids to be so too.

Related: Use These 7 Cash Tricks to Grow Your Savings

Additionally, a lot of what adults understand, value, agree or disagree about the world and life is based on what they were taught or exposed to as kids. So they way children view and value money will more often than not follow them into adulthood, so it’s important to teach them at a young age.

Simple things to try around the house that we thought of as well as found online from research include:

When they are super young:

• Get them a piggy bank
• Teach them the value of delayed gratification
• Learn to say no to them from time to time
• Teach them basic maths
• Teach them basic finance
• Teach them about having financial goals

When they are teens

• Offer ways to earn extra cash
• Don’t always pay for everything
• Teach them the value of earning what they want
• Being open and transparent about the family’s finances
• Discuss the costs of college
• Teach them the basics of investing

When they graduate from college:

• Empower and encourage them to come up with financial goals
• Lend a hand in their journey to being financially independent
• Offer financial support from time to time
• Teach them how to be responsible with financial products like credit cards and loans

Oh, by the way, if you are on the lookout for a credit card or a personal loan, and you’re not sure which is good, it wouldn’t harm to check out our website where we compare the best deals and offerings to help make the decision making process easier for you.

9. Learn budgeting for yourself and teach your children as well

A family that saves together, stays together: become financially savvy as a unit.

This step will not be easy at all, but with a lot of discipline, planning and patience, kids, too, can learn about the importance of budgeting.

Before a child can be motivated enough to save and understand the concept of money, they must first understand where it comes from. It may sound ridiculous but some kids do really think money grows on trees or has unlimited resources in the ATM. Once they realize that money needs to be earned, they’ll be able to appreciate it better.

An important concept to impart to your kid is to help them understand that money is received directly as a result of the work they do. Of course, there’s the concept of passive income, but that could be for when they are older.

Learning about personal finance is a lifelong journey, but it’s one that can start from young. Teach your kids different aspects of personal finance when they are at different stages of their lives. (Image source: CNBC)

Empower them to be financially independent and savvy from young.

One, albeit slightly controversial way of instilling such knowledge to your kids, is by rewarding them with money for the work or effort they put into their chores, which we define as extra work beyond their expected contribution as a member of the household.

It doesn’t work for all instances, because your child may be expected to do basic things like clean up after playing or making their bed in the morning, but other chores like sweeping the floor or washing the dishes may not exactly be their typical responsibility.

We say it’s controversial because some households believe this is against their values or way of life – but for those who don’t, it wouldn’t harm to reward your child as little as 30 cents for watering the plants for example.

Other than that, we found out online that you could also encourage your child to learn budgeting with this really cute setup: set up three jars – where one is for their savings, the other for spending money and the last sharing. This teaches them to plan their finances accordingly.

They will definitely not know how to budget, so this is where parents come into the picture, by helping them identify the differences between a need vs a want and short-term vs long-term spending. Help them set up an investment goal that they can work towards, for example, they might want to get a bicycle or a new barbie doll.

The sharing jar is one where they’ll put in money for causes that they feel are important to them. It could be donating to the local mosque or church, or maybe they would like to help a local fundraiser – this indirectly teaches them the value of being philanthropy and giving.

Educating your child about finances isn’t easy, but it’ll surely be worth it

Most parents that the writer has met have told her that being parents has been one of the most rewarding journeys, albeit difficult things, they’ve gone through in life, and some of these folks are some of the most accomplished professionals she knows.

The point is to say that the job of being a parent could so easily overtake any other job in this world – because of the level of hardship, the experience, the satisfaction and general happiness that people get from it. It takes a lot of effort to raise another human being, so kudos to all the parents out there.

And when you add finances to the mix, it makes for one heck of a super difficult task. No KPI is harder than that of being parents, especially because life is uncertain and unpredictable and parents need to be agile and adaptable to be receptive of it.

We wish good luck to all the soon-to-be parents or the seasoned ones, in their financial and life journey, we take our hats off to you.