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Education savings alert

(Shutterstock)
(Shutterstock)
Cape Town - As consumers feel the pinch of escalating petrol prices, Eskom hikes and the ever-rising cost of living, many parents are giving up the battle to save towards their children’s future education.

This is borne out by the 2013 Old Mutual Savings and Investment Monitor, which surveyed 1 000 metropolitan working South African households. The survey showed that the percentage of respondents making use of education policies dropped from 31% in July 2012 to 19% in July 2013.

According to Lynette Nicholson, head of research at Old Mutual, the percentage of parents with dependent children who are saving for their education has fallen each year for the last four years, tumbling from 55% of respondents in 2010 to 40% in 2013.

“The 2013 result also marks a significant drop from 2012, when approximately 50% of the respondents with dependent children indicated that they were saving for their children’s education,” says Nicholson.

This low savings rate for education was apparent across all income levels, the survey found. A worrying factor is that almost 38% of people said they would depend on their children to take care of them financially in their old age.

This is up from 26% in 2010, with 51% of people earning less than R6 000 per month indicating they would rely on their children in old age.

With South Africa's twin evils of jobs and education crises, this does not bode well for the future.

According to a study by the South African Labour and Development Research Unit, South Africans who obtain a degree earn on average between 2.5 and four times more than those who do not complete their schooling. They are also three times more likely to get a job.

The national census of 2011 found that only 28.4% of South Africans over the age of 20 have completed the 12th grade, while only 33.8% even made it to high school and 8.6% had no schooling at all.

It’s clear that education is the key to the financial future of South Africa – but how can parents save towards it in such trying times?

Here are some tips to build that educational nest egg.

Start early

It’s the simple rule of compounding. The longer the investment period, the more likely the fund will grow without too much strain on the budget for other expenses.

Even small amounts saved up for a long time can become significant savings for your children.

Have clear goals

You cannot set realistic goals unless you know how much you are going to need.

Once you have a realistic savings goal, create a budget - and stick to it. Even by just tracking where the money is going, you will be more aware of your spending habits and eliminate unnecessary purchases.

Go the debit order route

One of the best ways to save money is to never see it.

Set up direct debits and designate some of your money to go directly into a savings account. Savings should be factored into your budget as a monthly expense, rather than just what's left over.

Keep up with inflation

Monitor your returns and ensure that your returns are keeping up with inflation.

Inflation can quickly erode your savings efforts. Regularly check your savings account and contributions and make sure that you are contributing enough to overcome the erosion effects of inflation. Your financial adviser can assist you here.

Don't touch the money

The effect of compound interest means any withdrawal will severely curtail the final amount in the fund.

Let your child help

Encourage your children to contribute to their education with money from part-time and holiday jobs

Not only will this help the final fund amount, but it will also give your child an understanding of the importance of saving.

Look into grants


Research possible scholarships and bursaries - there are many funding grants available and you should see if any are applicable to your child.

 - Fin24

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