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Young Parents, Here's Why You Should Start Investing For Your Kid

If you don't start planning early, paying for your child's higher education can put a big hole in your finances. Here's why.

How expensive can children be? The answer today is close to half a million ringgit for each child.

According to recent estimates, raising a child in Malaysia will cost between RM400,000 to over RM1 million from giving birth to university fees. For most us, saving that amount of money seems an impossible goal and you may be tempted to just focus on what you need right now.

The good news is that these big financial milestones are within reach if you have a plan. Remember, you have the advantage of time to make your money grow if you start investing early.


Why start investing?

When you start a family, there will be lots of additional expenses. Perhaps you are more concerned about paying for childcare or enrichment classes for your kid today, but big-ticket expenses will require long-term planning.

If you don’t start planning early, paying for your child’s higher education can put a big hole in your finances. Here’s why.



Education comes with a big price tag

While paying for your child’s education may not seem that much when they are young if they attend government schools, the biggest chunk comes when it’s time to go to university. Almost half of what you spend on your kid goes into paying for higher education.

Even if you choose a local public university, be prepared to spend at least a five-figure amount on your child’s higher education unless you can secure a scholarship or financial aid. Estimates put the average total cost of higher education to be around RM63,300 – RM370,100 to get an undergraduate degree in Malaysia, including living costs.

If you are thinking of sending your child overseas for higher education, be prepared to spend upwards of RM400,000.

While twinning programmes and distance learning today can help reduce travel and living costs, it's still impossible for most wage-earners to come up with a five-figure amount to pay for their child's higher education expenses based on their current monthly salary alone.


Why investing early is the best way to afford education

For young parents, time is your biggest ally. Start investing early and let compound interest work its magic on the interest you earn on your investments.

Here’s how it works.

  • Let’s say both Zul and Naz have a child each at age 30.
  • Zul starts investing RM200 per month at age 30 to plan for higher education expenses when the child turns 18 years old.
  • Compare this to Naz who only starts investing RM200 per month at age 40 and has only 8 years to grow the investment. 

 

Zul

Naz

Age

30

40

Monthly investment amount

RM200

RM200

Contribution period

18 years

8 years

Annual interest rate

6%

6%

Total invested

RM43,200

RM19,200

Total investment value at the end of contribution period

RM74,173.57

RM23,753.92

For this example, we will assume a 6% return on investment (using EPF as a benchmark).

Source: Maybank Financial Goal Simulator

Based on the scenarios above, Naz may not even have enough saved up to pay for the child’s higher education expenses in a local public university when the child turns 18 years old. At least Zul has a bigger amount of money set aside when the time comes.

If you start planning early, you can even increase the monthly investment amount if you plan to send your child to a private university or to study overseas.


The Maybank Financial Goal Simulator can help you get started

Besides paying for your child's expenses, you will also need to keep track of your own and your family's financial milestones, whether it is putting aside enough money in emergency funds, getting insurance coverage or saving up for your dream home.

It is hard to imagine being able to save up even RM50,000, let alone being able to plan your own retirement.

However, young parents can still invest smartly and secure their child’s future. Start planning now to figure out how to set aside enough money for your long-term expenses and starting early enough to let compound interest work its magic.

What is the magic number you need? Estimate how much you’ll need to save for your child’s education with Maybank Financial Goal Simulator.

Disclaimer:
“The information provided above is not to be construed as investment advice and/or the provision of financial planning services. Neither is it to be construed as financial, legal, accounting, tax or any other form of advice whatsoever. You must obtain your own independent advice before making any financial or other decisions. No representations or warranties are provided as to the accuracy, completeness or timeliness of any of the information provided here. The Bank shall not be held liable and/or responsible for any loss as a result of reliance on the information presented.”