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Saving for a child's future

Dec 07 2011 07:24

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A Fin24 reader asks:

How can I plan for my child's education?

Heather Robertson, a certified financial planner at Blink Consulting, responds:

All parents want their children to achieve their fullest potential and most agree that education is key.

But a good education comes at a price. From primary school through to university, education bills will be one of your heaviest financial burdens as a parent.

Fortunately, there are a number of strategies you can use to maximise the savings you put away for your child's education. Below is a brief overview of the most popular options currently available.

Fundisa account 

This is a government-incentivised education plan that gives you an annual bonus of up to R600 on an annual saving of R2 400. The funds must be used for your child's tertiary education, otherwise the bonus will be forfeited.

Lump sum investment

If you have a lump sum available now, it can be invested to provide a sizeable return when you need it most.

Due to the magic of compound interest, the longer you can leave the funds invested, the greater your return is likely to be. (Compound interest arises when interest is added to the principal, so that from that moment on the interest that has been added also earns interest.)

Education endowment plan

This investment provides a tax-free lump sum after five years. Depending on the product provider, minimum contributions will apply. You can also add premium waivers and investment guarantees.

Life insurance

Although not a savings product, life insurance gives you peace of mind that your child's education expenses will be taken care of should you or your spouse die or become disabled.

When your financial adviser calculates how much cover you need for education, your choice of public or private school, whether funds will be needed to pay for university as well as additional expenses such as uniforms and textbooks will need to be considered.

 - Fin24 

education  |  investing
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