Welcoming a baby brings immense joy and responsibility. As parents, planning for their future — from medical needs to education expenses — is vital. Besides traditional savings methods, where else can you grow your hard-earned money?
Besides piggy banks, there are moneysmart ways for Filipino savers to build long-term wealth. But sadly, 30.2% of household Filipinos have savings this year. Hopefully, the numbers will increase as Banko Sentral ng Pilipinas (BSP) ramps up its efforts in financial inclusion.
Check out these five ways to grow your money and appreciate the power of compounding interest.
1. Educational plans: Ideal for funding a college education
College education costs increase yearly, typically by about 12.06%. For example, if current tuition is ₱160,000, it could reach approximately ₱500,000 in 10 years and around ₱1 million in 15 years. This is to assume that the 12.06% is constant, which may not be the case in reality.
Investing in a low-interest savings account exposes your money to inflation’s erosive effects. Instead, opt for an educational plan that combines savings, insurance, and investments. Allocate a fixed monthly amount to secure your child’s education.
In the Philippines, several popular educational plans are available.
- Insular Life’s Basic Assure10 offers guaranteed cash benefits for future goals like education.
- AXA Academic eXentials is known for its affordability and simplicity.
- Sun Life also offers educational plans with loyalty or premium bonuses for regular premium payments.
Educational plans in the Philippines are long-term financial commitments. So, choose a payment plan (monthly, quarterly, semi-annually, or annually) based on your financial capacity. Don’t treat it as an afterthought, but budget it wisely.
2. PAG-IBIG MP2 funds: Good for a five-year holding period
Active PAG-IBIG members can save for their baby through the Modified Pag-IBIG II (MP2) Savings Program. It’s a voluntary scheme that allows members to save more and earn higher dividends. MP2 savings reached nearly ₱40 billion in 2022, up by 54% from ₱25.95 billion in 2021.
Here’s a rundown of MP2 savings fast facts:
- Members can contribute a minimum of ₱500 per remittance with no maximum limit.
- Savings are held for a 5-year maturity period, earning tax-free dividends based on fund performance.
- Withdrawals can be made annually or after the 5-year maturity.
- After a 5-year maturity, unclaimed savings will no longer earn dividends under the MP2 Savings rate. However, they will still earn dividends based on the dividend rate of the Pag-IBIG Regular Savings for the next two years.
The MP2 Savings’ yield after five years depends on the amount saved and the annual dividend rate, which fluctuates based on the income of the Pag-IBIG Fund. In 2022, the return rate was 7.03%. If you deposit ₱100,000 lump sum, you’ll earn a higher overall return with compound interest.
You can create multiple MP2 savings using your regular PAG-IBIG account. Use your name on the specific MP2 savings account for your child’s funds. Keep track of your contributions and the amount you’re putting in.
3. High-interest rates savings accounts in digital banks: short-term savings
Digital banks in the Philippines offer higher interest rates than traditional banks. For instance, Seabank provides up to 4.5% p.a. on deposits up to ₱250,000 and 3% p.a. on amounts above that, helping your money grow faster.
Let’s weigh the pros and cons:
|1. Higher interest rates: Enjoy better returns on your savings compared to traditional banks.||1. Internet dependence: Stay connected to enjoy seamless digital banking; poor internet quality may pose a challenge.|
|2. Convenience: Bank anytime, anywhere, giving you greater control over your funds.||2. Security threats: While efforts are made to secure banking websites and apps, security threats persist.|
|3. Lower fees: Save on banking costs with digital banks’ reduced fees.||3. Easy to transfer or withdraw funds: Its convenience also brings the flip side as it gives you more temptation to use the money, forfeiting the goal of saving funds for the long term.|
Digital banks can help grow your baby’s fund with higher interest rates and convenience. But be aware of potential drawbacks and comfortable with the level of risk. Keep track of transactions and regularly check balances for accurate recordkeeping.
4. Income-generating investments: properties and rentals for long-term gains
Investing in income-generating properties and rentals is a great way to grow wealth for your baby. With real estate investments, you can create a steady passive income stream and benefit from property value appreciation over time.
Here are practical ways to invest in real estate if you have set aside huge amount of money.
- House flipping: Purchase undervalued or foreclosed properties, renovate them, and sell them for a profit.
- Buy and rent: Acquire properties in high-demand areas and rent them out to generate a steady income.
- Buy and hold: Purchase properties and hold onto them for long-term appreciation. If you hold them for 10 to 15 years, there’s a higher probability you can liquidate your assets with higher ROI.
- Real Estate Investment Trusts (REITs): Invest in a REIT to gain exposure to the real estate market without directly owning properties.
- Co-ownership investment: Pool resources with other investors to purchase and manage properties together.
Investing in properties may be intimidating for some, especially if they’re just starting a family. Let’s take a look at the pros and cons below:
|1. Stable demand: There is a consistent demand for properties in the Philippines, especially in urban areas.||1. High initial investment: Purchasing properties typically requires a significant amount of capital.|
|2. Passive income: Rental properties can generate a steady income stream.||2. Maintenance and management: Owning and managing properties can be time-consuming and costly.|
|3. Capital appreciation: Property values tend to appreciate over time, increasing the overall value of your investment.||3. Market risks: Real estate investments are subject to market fluctuations and potential downturns.|
5. Investment accounts: open an account on stocks, UITFs, and mutual funds for long-term gains
The Philippine stock market has been bouncing back since the economy reopened in 2022, with improved performance across various businesses. Currently, the market’s year-to-date (YTD) daily average turnover is ₱6 billion. The future of stocks, mutual funds, and UITFs depends on market conditions and economic factors.
These investment vehicles historically offer good long-term returns. For example, a small annual investment can grow significantly over time due to compound interest’s powerful effect. They provide potential for long-term gains, making them an excellent alternative or complement to real estate investments.
Like any type of investment, there are also associated risks. Check out the pros and cons before you dip your toes into investments.
|1. Potential for high returns: Stocks, UITFs, and mutual funds have the potential to provide high returns over the long term.||1. Market risk: The value of these investments can fluctuate based on market conditions.|
|2. Diversification: These investment vehicles allow for diversification, reducing the risk associated with investing in a single asset.||2. No guaranteed exact returns: Unlike fixed-income securities, these investments do not offer guaranteed exact returns.|
|3. Professional management: Professionals manage UITFs and mutual funds, relieving investors of the need to monitor their investments constantly.||3. Fees: There may be fees associated with managing these investments.|
UITFs in the Philippines have different initial investment requirements, depending on the offering bank. It’s generally affordable and accessible to many investors. For instance, Metrobank allows starting investments for as low as ₱1,000 via FirstMetro, while Security Bank Philippines requires ₱5,000.
When it comes to saving for your baby’s future, there’s no better time to start investing than now. Time is your greatest asset. Each of the five tips can contribute to cultivating a healthy savings account that will benefit your child as they grow older.
Allocating funds to investments that generate income and offer higher interest rates than traditional banks is a great way to positively invest in your child’s future.
So, which of these tips do you think should you prioritize first?
Let us know in the comments below.