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Coping with the cost of kids

PHNOM PENH -  The cost of raising a child in the United States from birth to the age of 17 is approximately US$150,000, according to official surveys. And this figure does not even include the cost of university education!

According to a survey by the US Department of Agriculture, we can expect to spend anything from $148,320 to $298,680 per child from birth to the age of 17. For a middle-class family with an average annual income of $61,000 the average estimated expenditure is $204,060.

The survey, which was conducted by the USDA from 1990-92, was updated to take into account the value of 2007 dollars using the Consumer Price Index. It claims that a middle class family earning an annual salary of $45,800 to $77,100 can expect to spend an extra $68,160 per child on housing from birth to the age of 17. The same family can expect to spend $34,650 on food, $9,840 on clothing and $25,230 on education per child over the same period.

In another survey conducted by the BBC for its Money Programme in 2007, the cost of raising a child to the age of 21 years old was estimated at £180,000 - which is approximately $285,000 at current exchange rates. This figure includes the cost of university education which was £32,000 - or about $50,000.

The findings of both surveys are somewhat similar. However, no matter which figures we choose to believe, both studies show that bringing up children is an expensive undertaking - albeit a rewarding one. It also shows that bringing up children requires proper financial planning.

There are numerous ways to save for children and their education. These range from simple cash savings accounts to equity trading funds.

Know your options

Often parents and grandparents like to put away a lump sum cash amount for their children. This cash deposit gives the parents and grandparents a feeling of security because they know something has been set aside for their children's future - be it a deposit for a house or fees for education.

Some banks - especially those in the United Kingdom - have accounts especially set up for children. Such accounts offer a higher level of interest but also have an age limit for the account holder - sometimes 18 or 21.  

In the United States specific funds are set up to meet the needs of those wishing to save for children's university education. These are called Education Savings or 529 Plans.

They are operated by individual states or educational institutions and are designed to help families set aside funds for college costs.

Such plans sometimes provide tax breaks. In addition to a 529 Plan, we can choose a prepaid or a regular savings plan. With the savings plan, our regular contributions are invested in mutual funds or similar investments. We can often choose which investments we want to place our money in and our account will go up or down depending on the performance of the particular option we select.

For those of us who do not have access to such plans - and for those of us living overseas - we can create our own educational investment plans. One of the benefits of creating investment funds for children is that they are usually for the longer term - often for 10 to 20 years. This matches our overall goal of investing for long-term growth.

In today's stock market where volatility is the name of the game, regular savings plans in investment funds are my preferred option. By making regular contributions we should be able to ride through any inevitable ups and downs brought on by the current volatility.

And as long as we stick to our original long-term goals, by the time it comes to cash in our investment we should have accumulated considerable saving to put towards our child's education.

After all, over the long term, stock market funds have been shown to outperform other types of investments. And even though we are going through a period of uncertainty this is still expected to be the case.

As mentioned in previous articles, there are a variety of funds available to suit each and every attitude to risk.

Before choosing a fund it is recommended that investors do their homework or take professional advice from a personal financial adviser.

So when it comes to investing for your children and your children's future - remember it's never too late to start!  

After all, Your Money Matters!

Trevor Keidan is managing director of Infinity Financial Solutions, a firm providing impartial,  tailor-made  personal financial advice to clients in Cambodia and Southeast Asia. Should you wish to contact Trevor, please send an email to tkeidan@infinsolutions.com.  

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