With the start of the school year in full swing for most provinces and social media feeds currently abuzz with images of first day school smiles, the escalating cost of education may be fresh in the minds of parents.
While every parent wants the best possible education for their child, fees of private schooling can be crippling. Even sending your child to a top quintile public high school doesn’t come cheap: While fees vary, a mid-range public high school in Cape Town costs around R55 000 per year, with boarding school fees pushing the total well over R100 000. That’s a lot less than at the high end, but still beyond the reach of many middle-class South Africans.
Online schooling – an affordable alternative?
The disruption caused Covid-19 and concerns around rotational learning have caused a surge in applications for online learning. A number of prestigious schools now offer online learning, which is much cheaper than the cost of in-person tuition. These virtual schools either offer the CAPS or the Cambridge curriculum and annual fees come in between R14 000 to R60 000 annually.
While online schooling does offer a significant savings in terms of fees, there is still annual education inflation to contend with.
“Last year many private schools either froze fees or implemented very moderate increases,” says Saleem Sonday, head of group savings and investments at Allan Gray. “But this year most schools have raised their fees by 5% and this trend is expected to accelerate over time.”
This is amidst a rising inflationary environment in which the annual headline inflation jumped to 5.9% in December 2021, up from 5.5% in November 2021. This is the highest annual increase since March 2017 when the rate was 6.1%.
He cautions parents to not apply “panic pandemic” thinking to their education and investment goals.
“We are adapting to living with this virus and won’t be in lockdown forever,” he says. “Investing for education is a long-term financial goal that should not be influenced by events in the short term.”
A little goes a long way
Even though you may be able to afford your child’s primary school fees today, this doesn’t necessarily mean you’ll be in the same position when they reach high school or university. “The problem with relying on your salary for education costs is that the cost of education grows at a higher rate than the average salary and inflation in general,” Sonday explains. “Over time, this difference effectively means that a greater portion of your salary will have to be set aside for your children’s education.”
On the upside, however, the earnings you make on an investment can significantly lower the impact of education costs.
“There are many investment accounts and policies available to save for your child’s education, including education policies, unit trusts, tax-free investment accounts and endowments,” says Sonday. “The challenge for many parents is taking the first step towards savings for their child’s education. Not everyone has certainty early on with regards to the type of education they would be after and what they can afford. But starting to put some money aside as early as you can will allow you more options down the line.”
Avoid credit if you can
Sonday says the negative implications of “pay-as-you-go” education is that you will have no capital saved up for your child’s future studies. This means you may be forced to apply for credit, which can be prohibitively expensive if you make use of an unsecured personal loan.
“Rather let the magic of compound interest work in your favour by investing. Align your goals and timeframes with your investment choices to make sure you’re following the right plan using the right tools.”
Speaking to a trusted financial adviser will help you understand the various options on offer, as well as comparing costs and expected returns before making an informed decision.
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