Get your savings priorities right
As most South African parents know, times are tough. Given the ongoing pressure on personal finances, the reality is that many parents struggle to prioritise saving for their child’s education with 57% of urban South African parents not actively saving for their children’s education, according to the 2017 Old Mutual Savings and Investment Monitor.
Marius Pretorius, Head of Marketing: Retail Savings and Income Solutions of Old Mutual Personal Finance, says that with long term education inflation expected at 9% in 2019 surpassing general inflation, parents often find themselves in a pickle when it’s time to send their child to school.
“If your child starts grade R in 2019 you can expect to pay between R1 400 000 and R3 400 000, for public or private education respectively, over their school career. This rand amount includes primary school, high school and a three-year university qualification. It’s clear the time is now to make education savings part of a holistic financial plan so that when the time comes, you can afford to give your child the best education,” says Pretorius.
The truth of the matter is that education is expensive. If you’ve saved any money and your child is entering a public primary or high school in 2019 you can expect to pay on average about R37 000 this year, while a private primary school and private high school will set you back R92 400 and R148 300, respectively. When it comes to university education, parents can expect to pay R64 200 in 2019, on average.
See the table below for the increase in cost over time.
Pretorius adds: “Most parents will find it hard to fork out these costs in full at the start of the year unless you’ve diligently been saving beforehand. If not, you’ll have to factor this expense into your monthly budget, which may be a stretch for many.”
This is an expensive lesson but parents can avoid this shock by starting to save as early as possible. While there are various education savings vehicles available, Pretorius recommends that parents look at the solutions best suited to their budget, timeframe and their individuals requirements.
“Depending on your needs, you can choose between solutions starting from as little as R200. This means by simply cutting out 8 coffees per month you can start saving for your child’s education. Reframing education savings in this way can help parents who are worried about where they’ll find the extra money on a monthly basis,” says Pretorius.
While a Tax Free Savings plan may make sense for some, keep in mind that opening one in your child’s name can impact them later should they wish to use the vehicle for their own savings since the lifetime limit is currently R500 000.
For those who prefer to save outside of a Tax Free Plan, Old Mutual offers the Invest Flexible Plan that will not impact the child’s lifetime tax free allowance whilst still offering a wide range of underlying funds, flexibility in how you choose to contribute and full liquidity. Other vehicles, like Old Mutual’s SmartMAX Focussed plan can build more disciplined savings through regular contributions over a fixed term for those who value this type of commitment.
“There are hundreds of career options available nowadays, with many more still to come. Just think back a decade or two – data scientists, search engine optimisers and social media lawyers didn’t feature on the ‘options to study’ list and yet today they are sought after skills. To set your child up for lifelong success in whichever career he or she chooses, it is essential that you have an appropriate financial plan to back it,” adds Pretorius.
Pretorius says that rather than being panicked into inaction, empower yourself with information and ensure your financial plan mirrors your financial priorities.
“If you’re unsure about where you can find some extra money in your budget, tools like Old Mutual’s free 22seven app shows you where you’re spending your money and thus helps identify where you can start cutting. Being part of programmes like Old Mutual Rewards can also help you work toward your savings goals by rewarding you for healthy financial choices. If you’re unsure about where to start, reach out to a qualified financial adviser.”