Saving for your child’s education needs to start immediately
The startling cost of education is driving more and more parents to start saving earlier for their children’s education. Yet few realise just how expensive it can be to educate a child.
Research by Liberty Group Limited has found that the approximate total cost of education for a new-born child is estimated at R2,023,000 for private schooling and R701 000 for public schooling.
This excludes extra costs such as uniforms, textbooks, stationery, transport, extramural activities, and accommodation.
“Education is one of those sectors where prices are somewhat inelastic, meaning demand is less affected by a rise in price as parents will sacrifice to ensure their children get a good schooling,” says Errol Meyer, Legal Specialist at Standard Bank Financial Consultancy.
“The result is that these days if you want to give your child the best educational chance you have to start saving as soon as possible.”
As is usually the case with saving the earlier you start the better, especially since education inflation tends to outstrip consumer inflation by between 2% and 4%, depending on the year.
Then there is also the fact that most parents will have more than one child. Meyer says an ideal way to save for your child’s education is a tax-free investment vehicle, which allows you put away up to R33,000 a year that you can cash out at the end of your particular time horizon without incurring any tax.
“Rather than chasing high returns, define how much you will need over the investment horizon and then invest in a product that offers a return profile that will achieve that defined goal,” he says. “If you can reach your goal with an `inflation-plus-five-percent’ strategy then rather go with that than expose your child’s future to greater risk by chasing a more aggressive return profile.”
Another valuable piece of advice from Meyer is to save in the currency in which you intend paying fees. If you are planning to send your child to university in the UK then look for a British investment product denominated in pounds. If you want to send your child to study in the US then look for a dollar-based investment strategy.
“Different countries have different economic growth rates, interest rates, inflation, and political regimes which can all affect their currencies,” says Meyer. “The rand is also a notoriously volatile currency so it’s quite risky to save inrand if you intend educating your child abroad as there is a fairly good chance that the rand could move against you.”
Meyer’s final bit of advice is to educate your children about the value of money and instill in them a sense of responsibility. As you teach them about educational or sporting goals, also help them set financial goals and enable them to achieve them.
At the end of the day, it helps both you and your children if they know what they are saving for and how they can help achieve it.
“What is the point in having the money and the child has no appreciation for the effort?” says Meyer.
“Teach your children financial skills and instilling a sense of responsibility in them will go a long way towards giving them the best chance of making a success of their lives.”