Saving for your child's education

Cape Town - Without a certified tertiary education, the chances of South African children finding long-term employment are low, a local investment analyst said on Tuesday. 

“Parents often view ensuring their children receive a good education with high importance. But many parents are still confronted with the reality that they have simply not saved up enough to be able to comfortably fund their children’s tertiary studies. 

"As a result, their children are forced to seek out student loans and bursaries or take up part-time employment to cover these expenses,” said Anil Jugmohan, an investment analyst at Nedgroup Investments. 

According to a report published by Organisation for Economic Cooperation and Development, South Africa has the worst unemployment rate in the 15-24 age group.

“Only one in four South African matriculants will find employment after school. It is crucial to educate our young population and parents on the importance of setting aside funds to provide their children with the best chance of permanent employment: a university degree.

“SA is slowly moving towards the scenario faced by countries like China, where advanced degrees are becoming the bare minimum to find good employment,” Jugmohan said. 

Parents should look to put long-term financial savings plans in place that will enable them to send their children to a reputable tertiary institution, said Jaco Gouws, product marketing actuary for Old Mutual South Africa. 

Education fees on average increase by 9% a year, 3.5% above the current inflation rate. This means that fees will more than likely rise above any rate of salary increases you may receive. 

So on average, how much would you need to save per month? 

“Today an average public school education could cost you around R450 000 in school fees alone from Grades R to 12, and a private school R1.5m. This excludes extramurals, books and stationery,” said Gouws. 

“If your child is born this year, you’ll have to save about R3 800 per month to send him or her to private school and university to do a three-year business degree.

“This is if you increase your premium with education inflation every year. Remember that your salary may increase every year with inflation too. Provided you keep your premiums level, you will need to save about R8 100 per month. 

“If you plan to send your child to public school and university to do a three-year business degree and you increase your premium with education inflation, then you will only be required to save R1 500 per month.

"If however you keep your premium level without increasing it yearly as your salary goes up, then you will need to save R3 200 per month,”said Gouws.

Of course, many parents are already struggling to meet the expenses involved in raising a family – especially in an environment where the economy is losing momentum fast. It is always worthwhile to look for opportunities to be thoughtful around spending and financial planning.

“By consistently contributing relatively small amounts now, parents will eventually accumulate an attractive lump sum by the time the child is ready for university,” said Jugmohan.

While saving for your child’s education may be your primary goal, the real prize is watching them reap the benefits that a college or university degree offers. Saving smarter for your children’s education is key and the sooner you get going, the better.

Jugmohan provides the following tips to young parents saving for their childrens' education:

• Start early: the longer the investment period, the more likely the fund will grow without too much strain on your budget for other expenses.
  

• Accept that a lower standard of living might be necessary to avoid a higher risk of financial difficulty later.

• Try to avoid making withdrawals unless absolutely necessary. The effect of compound interest means that any withdrawals will severely curtail the accumulated amount.

• Encourage your child to contribute to their education with money from part-time and holiday jobs. Not only will this help the final amount, but it also instils in your child an understanding of the importance of saving and budgeting.

• Research possible scholarships and bursaries. There are funding grants available and you should see if any are applicable to your child.

 - Fin24

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