Freedom to be by their side with Children’s Trauma Insurance

Parents – please resist the natural urge to avoid this article because you don’t want to think about the topic. The tool I share below could save you considerable stress if misfortune strikes your family.

What would you do if your child suddenly and unexpectedly became seriously ill?

If something happened to Sophie or Isaac I would want my wife and I to be able to quit work immediately and be by their side, full–time.

I wouldn’t want one of us to have to work just to ensure the mortgage and bills get paid.

I wouldn’t want to be dependent upon the generosity of family, friends and the community to get by.

I would want to be able to afford top health care.

I would want to stay in our home. The comfort and familiarity will be an essential aid to recovery, for us and the ill child. Moving home is an added stress we won’t want.

But with most families dependent on their income, where will the money come from to provide the freedom to make those choices?

Introducing children’s critical illness (trauma) insurance

Children’s critical illness insurance is also known as children’s trauma insurance.

Child critical illness insurance pays you (the parent or guardian) a lump-sum on the occurrence of one of a number of conditions, similar to how your own critical illness (trauma) policy operates. You choose how to use the lump-sum.

What’s covered?

Most policies cover over 20 different illnesses including the ones you’d commonly think of such as:

  • Cancer
  • Paralysis, including paraplegia and quadriplegia
  • Loss of limbs
  • Blindness, deafness or loss of speech
  • Severe burns
  • Coma
  • Death and terminal illness

As with all insurance if the severity of the illness meets the policy criteria then you will be paid a benefit. With these policies the benefit will be paid as a lump-sum.

How do you get children’s critical illness insurance?

Child critical illness insurance is an optional add-on to the parent’s insurance policy. It can be an option to life, TPD or trauma insurance. So even if you don’t have your own trauma insurance policy you may be able to add child trauma insurance to your death or TPD policy.

Usually the child needs to be at least 2 years of age before you can add them to your policy, though I’ve seen policies with entry ages up to age 5. Even if your child is not yet that old when you buy your policy you can add the child trauma option when they are old enough (which is exactly what I did for my two children.)

Many policies are now offering maximum cover up to $200,000.

How much does it cost?

Premiums range between $200 and $300 per year per child for the sum insured of $200,000. You can choose to insure for a lower amount to fit within your budget.

At around $5 per week per child I consider that value-for-money peace of mind. Much more valuable than my car insurance.

Why you should consider children’s critical illness insurance

It doesn’t matter if you believe the likelihood of serious illness is low. The life and financial consequence to your family would be severe.

It is the severity of the consequence that makes the risk high enough to warrant managing the risk through insurance.

Get the protection then get on with enjoying your family time with peace of mind.

Message to parents of 20-somethings

Do you plan on being the regular, permanent (even full-time) day-time carer of your grandchildren for the first 6 years of their life?

Then don’t stand by while your children hock themselves to the eyeballs for a house and thereby guarantee their need to have two incomes for the next 20 years.

And whatever you do don’t go guarantor because your kids can’t afford the deposit and want to avoid lenders mortgage insurance. Let them live with the consequences of their past financial decisions and learn to live within their means.

Take the time to explain to your kids how tricky it is to balance a job with school hours and 12 weeks of school holidays each year. ( I know kids tend not to listen but it’s essential you try anyway.)

Otherwise you’ll end up being relied upon -doing more care than is fun and more than your ageing body can handle.

Or the grandkids will end up being in before and after school care every day from age 5.

Is that the family life you want for your kids and grandkids? Is that the family life your kids envisage?

If not, do something about it before they over-commit.

Teaching Kids About Money

My daughter Sophie, who is in year one, has been learning about money at school. They’ve made money boxes that sit on their desks and they appear to be earning (plastic) money. I’ve heard talk that this money will be used for a princess ball – but I’m not sure what the class princes and knights will be doing. Minor detail!

Teaching children about money is essential. Recent Federal Governments have recognised this and financial literacy is finally being incorporated into the national curriculum.

Recently a journalist interviewed me about what parents can also do to teach their children about money.

Mini Me

In my view by far and away the most important thing you can do to teach your children about money is to be an excellent role model.

I’m not a parenting expert, but what I’ve learned from such experts is that a lot of the things my children will learn from me will be through imitation – including my bad habits.

In contemplating how to teach your kids about money the place to start is reflecting how competent you are in managing your money.

If you’re not sure how to assess your competence try my free financial health check – it’s quick and online.

What to teach your kids

The most fundamental financial skill is managing your cash flow. The outcomes of good cash flow management include:

  • You consistently spend less than you earn
  • You have money for those things in life that really matter to you
  • You regularly save

Through modelling and mentoring show your children:

  • How to smooth out their lifestyle so that it’s not feast or famine based on what bills are due that month.
  • How to prioritise their wants so they get the biggest and most lasting enjoyment from their purchases.
  • How to save up for things they really want but can’t afford right now.
  • How to think ahead by planning for the predictable. (e.g. school holiday activities with mates, getting their licence, graduation ball, schoolies week.)
  • How bank accounts and interest works so they start to learn how to make their money work hard for them.
  • How to manage true emergencies without stress by having a pool of dedicated savings.

Teach kids to spend less than they earn

Since young children don’t have credit cards it may seem inbuilt and automatic that you are teaching them to spend less than they earn in pocket money.

Not so.

Children do have access to spontaneous, large bonuses, which they typically earn through whining, guilt trips and other weapons in their arsenal.

Whenever we cave in they learn that not having the money is not a problem.

When they eventually do get a credit card it’ll become an extension of their income that is quickly soaked up. So, they’ll get another, then another…

Enter, Mummy & Daddy to save they day so that our kids don’t ruin their credit rating. And the pattern repeats – just on a grander scale.

Saying no now is teaching them a valuable habit.

When my 6 year old daughter, Sophie wants me to top up her saved pocket money so she can buy something I explain that I don’t want to spend my pocket money on that item. I explain that instead I have more important things I want to spend my pocket money on, and try to weave in a recent example. It’s early days but so far she seems to understand.

Teaching kids to save up

To teach children how to save up I suggest you:

  • Start with small amounts
  • Make the items tangible and meaningful to your child
  • Use non-essential, truly discretionary items so you won’t be tempted to give them an unearned bonus.

When we introduced Sophie to pocket money she naturally asked what she could spend it on. She loves having a lunch order at school but our rule is that she can have one per term – usually in the last week. I suggested that she may like to save her pocket money for an extra lunch order per term and then helped her count the weeks she would need to save.

Jars for saving moneyFor older children the important things they really want may cost more and take longer to save for. You can help them learn how to avoid painful disappointment by helping them predict then plan for the predictable.

For high school age students one year is probably a reasonable time frame for them to be able to look ahead. At least every three months do a rolling one year look ahead of the things they really want to do and own. For example:

  • School holiday activities with friends
  • The latest gadget. You may not know what it will be but sure as the sun rises in the east there will be a hot gadget arriving.
  • Graduation ball (think expensive outfit, limousine and after party)
  • Schoolies week
  • First car (make them save for this rather than give it to them. It’s too good an opportunity for a valuable lesson.)

Of course the essential next step is to regularly set aside dedicated amounts to save up for each of the items.

Teaching kids to prioritise their wants

For older kids the one year look ahead will also help them prioritise their wants. Every time they want to spend their money on something more trivial remind them of the items on their one year plan and ask the open question “is this new item more important than these items?”

I believe the same can apply to younger children; you just need to shorten the time frame, which is what we’ve done at home.

Here’s one way I tried

To date Sophie hasn’t saved enough for a bonus lunch order. She keeps spending her pocket money on other items.

One early purchase she blew her money on (IMO) was a junk toy from one of those dispensers they have in shopping centres. (Those things had always been a firm no from Dad no matter the whining, so it was no surprise she indulged when given the chance.)

I think it was a matter of days before the toy was lost or forgotten.

A few weeks later a toy catalogue came home from school and Sophie really want a book she saw that was about a girl named Sophie. The problem was that she didn’t have enough pocket money left to buy the book.

It actually looked like an appropriate book to help her with literacy and I know how she loves to read and re-read her books. But I decided not to cave and give her a spontaneous bonus.

Instead I used the opportunity to remind her of where she had spent her pocket money and explain how that related to not being able to have this new item she really wanted.

Since then there has been a few other learning opportunities and I think (hope) she is catching on.

Involve them in the family budget

If they’re old enough to have a part-time job then I feel they’re old enough to see the whole family budget – warts and all.

Give them the opportunity to discover how much life really costs, including that roof over their head, the fully stocked pantry, funky fashions and their education.

Show them how you’re working out what amounts to set aside for future bills and for unforeseeable emergencies.

Explain to them how you decide what you can afford and what you can’t afford.

All of this is very hard to learn well if you are thrown into the deep end when you move out of home. Mistakes are easy to make and can be costly.

Give your kids a great start in life by giving them the gift of financial literacy while they are still young and at a home.

The best way you can do that is by being a great role model.

 

Up to $500,000 in school fees per child

Figures released by the Australian Scholarships Group suggest that the cost of educating your child could be up to $500,000 if you send them to the top private schools. Given that annual fees start around $10,000 per year from early primary school that total figure probably comes as no surprise.

ASG have kindly provided very detailed summaries, which makes their information worth a look.

Figures released by the Australian Scholarships Group suggest that the cost of educating your child could be up to $500,000 if you send them to the top private schools.

Given that annual fees start around $10,000 per year from early primary school that total figure probably comes as no surprise.

If however you are hoping to send your children to private schools let this be another nudge to ensure that you have detailed plans in place for how you are going to be able to afford that dream.

At the same time consider what safety nets you have in place. Do you really want to have to move your children to a new school away from their friends if you strike a tough financial patch?

Note that whilst I appreciate ASG publishing these figures I am not a fan of education bond products like those of ASG. I believe there are better ways to save up for and fund your children’s education. I believe funding school fees should be looked as one lifestyle goal (albeit a big one) as part of a total financial well-being plan. That can give you greater flexibility as well as better bang for your savings buck.

School fee summaries and estimates by state

ASG have kindly provided very detailed summaries, which makes their information worth a look.

You can browse national figures and by state. Figures are also split between metropolitan and regional and between education ‘systems’ (Government, Systemic such as Catholic, Private).

And they also include estimates for children starting pre-primary this year (2011) and those children born this year.

View the ASG school fee estimates here.

 

 

Wealth Insights for Young People

There is such a myriad of ideas for how to manage you money it is very difficult to know where to start and what is appropriate for you.

In one of my regular interviews on Wake Up! WA we discussed money tips for young people, including students. IN the later half of the interview we also touched on how parents of young people can support their children in creating positive money habits.

Watch the video below or here.

You can watch other Money Guide videos at www.MattHern.tv and here on my blog.

Calculating the costs of your children’s education

Being a parent is one of the greatest gifts I have received in my life. But over the past two years I have also noticed the increase in our spending, and we have not yet even hit school or the teenage years. I know from working on education plans for my advice clients how much can be spent on giving our children the best start in life that we can.

Australian Scholarships Group (ASG) have just released an online calculator designed to help parents estimate the future costs of their children’s secondary school education. They claim it is based on extensive research of costs in addition to school fees. You can also select to calculate for different categories of school and differentiate based on your state of residence.

You may also be interested to read this more detailed research report from AMP & NATSEM, which examines the total cost of raising children. AMP & NATSEM Report – The Cost of Raising Children (Oct 2002) Note that the figures are based on values in 2002 and should be indexed for inflation.

(Please note that Australian Scholarships Group also offer education savings plan products – this post is NOT a recommendation for their product nor a recommendation for ‘education bond’ class of products . There are many different ways to save for your children’s education and you should explore them with your adviser.)

Saving for your children’s education

Research suggests that the cost of raising children can be about a quarter of a million dollars per child over their lifetime. When you add private school fees to the mix (and every associated expense), you can probably increase that by another 50% or more. So it is a wise idea to plan ahead and incorporate future education expenses in your wealth creation plans right from the day the “c” word enters your relationship conversations.

Daddy's Precious Angel (aka Sophie) on my first Father's Day

Our Children: we love them from the depths of our hearts and we dream of the many experiences that we want to give them. I often here parents say “I want to give my children the best start in life that I possibly can.” One of those “best starts” that parents often have in mind is to send their children to private school.

Research suggests that the cost of raising children can be about a quarter of a million dollars per child over their lifetime. When you add private school fees to the mix (and every associated expense), you can probably increase that by another 50% or more. So it is a wise idea to plan ahead and incorporate future education expenses in your wealth creation plans right from the day the “c” word enters your relationship conversations.

How Much Does Education Cost?

Recently The West Australian newspaper released a “Guide to Independent & Catholic Schools, 2006/2007”. They summarise that in fees alone primary school costs ranged from $600 to $8,000 per year, and the secondary school fees ranged from $1,200 to $13,500 per year. In addition you can expect to pay for books, uniforms, laptops, sports, camps and other special tuition, depending on the school.

Looking through the range of fees it appears that a large proportion of the fees for primary school are around $3,000 per year, and around $5,000 per year for secondary school.

I then asked my tutorial students at Curtin University for an idea of university costs and they suggested it costs about $10,000 per year.

A $6,000 per year Savings Plan

Based on those broad averages above if you start saving from the day each child is born you need to save approximately $6,000 per year, for each of their first 21 years. That estimate is in today’s dollars, so each year you need to increase the amount by around 3% to keep up with inflation.

(For those number crunchers reading this there are a bunch of assumptions built into that estimate. I have assumed a balanced portfolio, and that fees increase by 7% p.a. which is the average increase over the last 15 years.)

A Common Savings Plans

It seems that when many people think of education savings plans they think of the formal plans promoted by a couple of prominent groups. Such plans require a regular monthly payment and you only get your money back according to a specific schedule, and under the right circumstances it could be tax free. These plans operate under special provisions in the tax act, and are also known as Education Bonds.

These products have improved in their flexibility in recent years, but they are still not super flexible. For people who are not very disciplined savers (spenders), the rigidity of these plans can be just what the doctor ordered.

An Alternate Approach

If you want the best wealth creation strategy then I suggest you take a broader view. Consider saving for your children’s education in the broader context of your overall lifestyle creation strategy. After all, children’s education is just another lifestyle expense like saving for a big family holiday or a new car.

Other options you could consider include one or a combination of:

  • Saving into a dedicated bank account
  • Saving into a diversified portfolio of managed funds
  • Making extra repayments onto your mortgage, saving loan interest, and then later redrawing from your mortgage to pay school fees or just paying the fees from your income once the loan is repaid
  • Gearing, using a home equity line of credit or a margin loan using instalment gearing

How To Decide

To decide the best strategy for saving for your children’s education you need to find an appropriate balance between such factors as:

  • Your saving/spending discipline and habits
  • If you have any existing lifestyle debts such as mortgages, car loans, personal loans and purchase payment plans
  • Your marginal tax rate
  • Your tolerance of investment risk (also known as your risk profile.)

Your Next Steps

The best way to save for the cost of children is not to do it in isolation. To in fact do it as part of a more comprehensive look at your wealth creation, because in doing so it opens up a broader range of strategies and possibilities to you.

And that all comes down to your goals and dreams.

So the best next steps are:

  • Work out what type of school you want to send your children to
  • Find out how much that will cost
  • Add that to your broader lifestyle dreams
  • Ask a financial planner to help you create a strategy that achieves a balance of them all