Do you feel overwhelmed at the thought of how you will finance your children’s education? You are not alone.
Most people want to empower their children by giving them the best possible education. But they don’t know where to begin when it comes to saving for education.
Many rely on their salaries to pay for their children’s education. You might absorb the cost, tweaking your budget to accommodate the ever-increasing expense. The cost of education in South Africa can keep parents up at night.
Maybe you think it’s too early to start saving for your child’s education. Maybe you think it’s too late. The truth is the best time to start saving for your child’s school fees and university costs is right now!
WHAT WILL IT COST YOU?
Helping your children by investing for them could be seen as a luxury. But with the cost of education soaring, it’s looking more and more like a necessity.
The group’s data shows that if your child starts Grade R in 2020, with education inflation of 9%, you can expect to pay around R1.6 million for their public schooling up to matric and a three-year university qualification.
By comparison, if you choose private schools and university, the costs double to R3.7 million.
For this year, your monthly costs for school will be around R3,500 for public school and R8,500 for private school. And that’s just the bill before tertiary education.
Depending on the education choices you make for your children, it’s likely you might feel some financial stress once your children start school.
This may be a significant chunk of your monthly budget. And excludes any additional costs like uniforms, stationery, extramural activities, sports or club fees and extra tuition.
SETTING UP A SAVINGS PLAN FOR EDUCATION
Remember that any saving or investment should align with short-, medium- and long-term goals. And know that these goals change over time. Paying for a child’s secondary or tertiary education would be a long-term goal when they’re a baby. But a short-term one when they’re in the final year of high school.
The various savings options available to parents include the following:
Tax-free savings accounts
A tax-free savings account can be opened in the name of a child, who will have their own R33 000 annual limit. You will not be taxed on the amount. So any money you save will grow at a relatively faster rate compared to regular savings accounts. Start saving as early as possible. And keep within the annual threshold amount, and the lifetime limit of R500 000.
You can open a tax-free account for your child as soon as they have an ID number. Any money you save in that account becomes technically and legally your child’s money. When they turn 18, they may decide to spend it on a trip abroad rather than use it to fund their tertiary education. So communicating the importance of a good education to your child from an early age is important.
Education saving plans
Education plans on offer by most financial services companies and insurers are typically endowment policies. With endowment policies, a monthly contribution is made for a specified period. And a lump–sum amount is paid out at the end of the period. The minimum investment term is generally five years. For higher-income earners, endowments potentially offer greater tax efficiency because they are taxed at a flat rate of 30%.
Life cover is also important because you’d want whatever investments you’ve made for your children to be continued. Something like Discovery Life’s Global Education Protector will cover the cost of education (including tertiary studies globally) in the case of disability, severe illness or death.
Bank Savings accounts
While keeping some cash in the bank in a savings account is good, it’s not recommended as the ideal way to save for your child’s education. A standard savings account won’t attract the level of interest that a good investment plan could offer. Some savings accounts offer tiered interest rates, so the more you invest or keep in the account, the higher the rate. Speak to your financial advisor about the best options.
Medium- and long-term investments
To beat education inflation, investing in a solution that outperforms CPI is ideal. There are a number of Investment plans available, but remember to consider the fees associated with your investment. Financial planning experts say that starting to save from the time your child starts Grade 1, will enable you to invest more aggressively and ride-out market fluctuations.
Unit trusts can provide ideal vehicles to use as part of an education savings plan. Unit trusts also offer flexibility if you require early access to your money.
DO YOUR HOMEWORK
Ways to grow your savings are plentiful but not all will deliver on their promises. It is important to speak to someone who knows about making your money work for you.
Your needs and goals are unique, so why be boxed in when it comes to investing? Ideally, you want an out-of-the-box thinking financial advisor who will help you understand what will work best. Always ask about the tax implications of saving money and get someone to help you understand the benefits of tax-free investments.
DON’T DIP INTO YOUR SAVINGS
No matter how tough things may get financially, make a commitment to not withdraw any of the money you have put away for your children’s studies. Taking a little here and a little there, over a period of years even, can have a severe impact on the growth potential of your money.
In a world of escalating education inflation, we are better off saving a little each month than not saving at all. It really is true that every little bit helps. So rather than worrying about the fact that you are not saving enough, overcome this barrier and get started. You won’t regret it. Save all you can today to decrease the pressure of the growing cost of education on your budget. And to empower your children with more options in the future.
DISCLAIMER: The information contained in this article is of a general nature and intended as a guide only. Before making any decision, we recommend you consult a financial planner or advisor to consider your financial situation, needs and objectives.
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