To PROTECT and to PROVIDE for our children – these are probably the two strongest attributes parenthood brings out in people. Protecting and providing for your children happens in so many ways and is so self-explanatory that we don’t need to bore you with examples, except when it comes to EDUCATION.
A good education will help protect your child from many societal ravages, especially in later life when they are no longer under your guidance. A good education will also provide better opportunities for your children in the future.
How do we best provide for our children’s education?
Let’s tabulate 3 schooling scenarios
We note that no assumptions were made on elite private schools or overseas university education.
Figure 1: Various scenarios for education saving:
|STAGE||Age||Duration||Low p.a.||Medium p.a.||High p.a.|
|Creche||3 months – age 6||6 years||R18,000||R36,000||R54,000|
|Primary school||Age 7 – age 13||7 years||R30,000||R60,000||R90,000|
|High school||Age 14 – age 18||5 years||R40,000||R80,000||R120,000|
|Tertiary education||Age 19 – age 22||4 years||R40,000||R80,000||R120,000|
|Inflation-adjusted total cost||R1,458,666||R2,917,332||R4,375,998|
Figure 1 above assumes that all fees increase by 6% p.a.
The first step is PROTECT and/ or INSURE a parent’s ability to pay for their child’s education. This means some type of life assurance, that will ensure schools fees are either paid for, or that there is a capital lump sum set aside to be invested and used to pay the required fees. Generally, this type of insurance would provide cover if the parent(s) died or become disabled. There are a number of risk-insurance products in the market that will provide, in lieu of parents being unable.
A simple calculation of how much is needed would be to discount the total fee by the inflation rate, so in the medium scenario an amount of c. R800,000 life cover should be enough to cover expected costs. We highlight that this cover would need to be recalculated and reset every year as the potential obligation decreases with the passage of time.
The second step is how do you save or pay these fees along the way?
The recommended savings vehicle that we consider the most appropriate for education saving, due to its complete flexibility would be unit trusts. With unit trusts you can add money anytime, you can withdraw at will with no penalties, you increase/ decrease debit orders, you can set-up regular withdrawal amounts and there is a wide range of unit trusts available from which to choose.
The US is currently experiencing a student loan debt bubble. Too many students have taken on too much debt to get themselves educated, because their parents did not plan appropriately. Servicing that debt when you start to work is proving too big a burden to carry for many.
Education is critical for your child and the scenario planning we discussed above is fairly straightforward, making it the best way of protecting and providing for your child’s education and future.