Saving for your child's education is a necessity. Even if you can afford the fees today, chances are that annual fee escalations will make it increasingly unaffordable.
If school fees continue to increase at a faster rate than your salary increases, educating your child will start to take an ever increasing percentage of your household budget. Even if you can afford the fees today, there is a good chance you will not be able to afford the costs of high school once your grade one child starts grade eight.
At the current increase in school fees of 10 percent a year:
- in seven years’ time high school fees at a "Model C" school will cost around R35 400 a year; or R216 000 for all five years.
- A relatively inexpensive private school will set you back R540 000.
You need to start saving in order to fund the difference between the school fees and what you can afford from your salary.
Where to save
There are many appropriate savings products available; however the key is to start early. The earlier you start the more you benefit from compound growth. For example, if you saved R200 a month for seven years you would have contributed R16 800, however if the investment grew at 10 percent a year then your total return would be R24 800, that means R8000 of your child’s education would be paid by growth.
The best way to start saving is to set up a debit order at the beginning of the month and think of the deduction as compulsory.
- Education plan. There are education plans such as Liberty’s Education Builder. These are structured as endowments so you would be committing to save for a specific period of time, usually five or ten years. In order to benefit from the tax incentives, you have to be invested for at least five years.
- Unit Trust or Exchange Traded Fund. These are more flexible products which you can start and stop when you choose. However, if you are concerned that you would not have the discipline to save or may cash it in for other purposes you may want to consider an endowment structure.
- Fundisa. This is a savings account specifically for tertiary education. The department of education and the asset management industry supplements the savings by up to R600 a year, however in order to receive the bonus you have to use the funds at an accredited tertiary institution.
- Cash. If you are planning on only saving for a year or two then you should consider more cash-like investments such as the RSA Retail Bond or a fixed income unit trust.
Protecting the future
When taking out an education plan for your child consider including an insurance policy that will pay your child’s tuition if you cannot due to death or disability. The Educator benefit is an optional benefit on Liberty’s Education Builder; you pay a separate premium so it does not affect the return of the education investment.
How much to save
Check out this online tool to help you calculate how much you need to save for your child’s education.
Article published courtesy of Liberty Life.