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Quality school education shocker

Cape Town - When Chris Pretorius, a wealth manager at AlphaWealth, did some research into the cost of educating a child he received a rude awakening.

Pretorius recently became a dad and decided to work out what he needed to save to give his son the best education possible. He discovered that a top rate education in South Africa will cost between R1m and R7.7m, depending on whether your child gets a quality government education or South Africa’s equivalent of Ivy League education.

The fact that these numbers exclude items like food, extra lessons, textbooks, clothes, sports kit, medical expenses, holidays and a car when your child turns 18 makes them even more shocking.

The amounts only take into consideration the actual school fees and nothing else, not even the acceptance fee most private schools charge. It also excludes tertiary education.

Pretorius looked at three different categories. Both private school options assume that your child will go to pre-primary school (a junior college owned by Advtech) aged three and will then go to grade R at the respective schools. The government school option only assumes that your child started in grade R.

The first category is called Ivy League education and assumes your child goes to junior college and then Pridwin College before making his way to Michaelhouse or Hilton College.

The second category is termed first class education and includes junior college before attending St Johns, St Stithians, St Davids or Bishops. Lastly, premium education includes King Edwards or Grey Bloemfontein, but only at grade R.

Invest aggressively

Says Pretorius: “Planning for your little one's schooling is not a cheap exercise, as the tables show. This means that you cannot afford to invest cautiously - the numbers force you to take risk and assume that you will generate long-term stock market returns. If you do not invest as aggressively as possible, the amount of savings or lump sum investment will increase significantly.”

The table below shows what you can expect to pay for a new baby’s education. This is the value of all fees that you will pay in the future, assuming 10% annual school price inflation.

The table below shows the lump sum required at the birth of your baby or the annual required contribution. The amounts below do not make provision for tax, so you need to add at least capital gains tax.

However, if you invest well and generate *alpha of 2.4%, you will be able to reduce the amounts above by 16%. The table provides you with an indication of the effect of generating 2.4% alpha.


The table below provides the current fees of the mentioned schools.
                                    

For the purposes of this analysis, Pretorius made the following assumptions:
1. All private school options make use of junior college from grade 000 till grade R and 0, and then make use of the respective school's grade R classes if available; if not, then grade R is also at junior college. The government school option: your child only starts school at grade R.
2. Pridwin College is used as the primary school for Michaelhouse and Hilton, which do not have a pre-primary.
3. School price inflation is 10%.
4. Inflation is 6%.
5. All your money is invested in the stock market and the historical average real return of 8% applies to your funds.
6. No provision has been made for sequence risk.
7. Taxes have not been accounted for.
8. Pretorius averaged the fees for St Stithians, St Davids, St Johns and Bishops, which all offer top rate education.
9. Pretorius averaged the fees of Pridwin, Michaelhouse and Hilton College, which offer Ivy League education.
10. Pretorius averaged the fees of King Edward and Grey Bloemfontein, which offer premium education.

* Alpha:  A measure of performance on a risk-adjusted basis. Alpha takes the volatility (price risk) of a mutual fund and compares its risk-adjusted performance to a benchmark index. The excess return of the fund relative to the return of the benchmark index is a fund's alpha.

 - How much do you pay for your children's schooling? Do you think this is justified? Let us know and you could be published.


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