Saving for your child’s education

There’s no doubt that babies can be expensive. Nappies, childcare, clothing, equipment – it all adds up, particularly if you’re a one-salary household. When you’re in the midst of those busy few years of your child’s life, chances are that the last thing you’re thinking of is your child’s education. But perhaps you should be.

Where and how to educate your child is one of the most important decisions you’ll make for him or her. It can also be one of the most expensive. The average cost of a high school education varies greatly, depending on location and the type of education you choose – but chances are it will be more than you think.

Most parents want to provide their children with the best possible education – but the rising cost of education is putting an increasing strain on family finances. Figures from Stats SA show that the cost of education has increased well above that of ordinary inflation. Since 1990, inflation for ­day-to-day living expenses has surged by about 7% a year. Education costs, however, have increased by 13% a year. This 6 percentage point differential each year has resulted in a significant rise in education costs when viewed as a percentage of our salaries.

For example, if you earned R10 000 a month in 1990 and spent R500 a month on your child’s education, you would have been spending 5% of your income on education. If your salary only increased in line with inflation, you would be earning R44 000 today. However, the cost of providing your child with the same education would have increased to R7 400 per month, which makes up 17% of your income. It’s quite a daunting thought, isn’t it?

When a child is very young, we know that there’s a cost associated with education, but we don’t really measure it out. We often think that the only cost is the school fees and don’t consider the big picture.

It’s important not to forget about money needed alongside the tuition fees  for items such as:

  • Clothing
  • Incidentals
  • Excursions
  • Computer and internet costs
  • Stationery and text books

To help you get a clearer idea, speak to your financial advisor or visit a few financial institution websites – they regularly update their education cost information so you’ll always stay a step ahead.

The following list takes in the most up-to-date information available and includes everything from tuition to the cost of computers and networks:

Public schooling from Grade R to Grade 12 (for a child starting Grade R in 2014) can cost you between R450 000 to R 530 000 for those 12 years. Don’t forget the school uniforms and normal extra-mural activities that can cost as much as R9 000 per year extra.

Private schooling is roughly 2.5 times more expensive than public-school education (R 1 785 700). One year of high school education at a private school costs approximately R80 000 in 2012. By 2018, that could increase to around R124 000 per year.

Why not find a suitable school in your area right now? Visit School Guide South Africa to get started.

How to plan for your child’s education

The best advice for planning your child’s education is to start early.  We suggest that parents start from birth. This way, you can give your money time to compound with interest.

Here are a few money saving tips:

If your child is born today, you’ll need to save R1 500 each month for public schooling and a three-year degree.

To pay for private schooling and a three-year degree, you’ll need to start saving R3 800 a month – that is if you increase your premium to keep pace with education inflation, which is around 10% a year.

“That amount can seem terrifying, but it’s important to act and to empower yourself with knowledge on education costs by using the new generation of online calculators,” says Jaco Gouws, product marketing actuary at Old Mutual South Africa.

For more information, and to calculate individual education costs, visit Education Calculator - Old Mutual

Strategies to use to save for your child’s future

By having a plan in place, you can find a way to put money away. Here’s what you can do:

1.  Watch your debt

Many parents complain about the cost of education, yet they drive around in a R5 000 per month luxury vehicle. Your child’s education is far more valuable than a luxury car, and education doesn’t depreciate. When you buy a house, car or take on any debt, do not do it at the expense of your child’s education!

2. Grow savings painlessly

If you received a salary increase this year, sign a debit order immediately to put 2% of your additional income into a savings account. Commit to increasing that every year by a further 2% and, within five years, you will be saving 10% of your salary.

Another way to achieve this would be to commit to saving an amount that increases by a few per cent ahead of inflation each year. It’s best to talk to your financial advisor about these options.

3. Set realistic goals

It is very difficult to save enough to pay for your child’s secondary or tertiary education in full. Rather target the growing gap between your salary increases and the increase in school fees.

You also need to save for the jump in school fees when your child moves into high school as the difference can be as much as 20%. In fact, even primary school fees increase with each grade, over and above the normal annual fee increases.

4. Have a plan

A good starting point is to enrol your child in a school that you can afford on your current salary. Then, as soon as your child starts Grade 1, increase your savings by the difference between primary and high school fees.

You will then be setting aside a realistic percentage of your salary for your child’s 12 years of education, and the savings will supplement the annual fee increases in high school.

For example, if Grade 1 costs R1 000 per month but Grade 8 costs R1 500 per month, you need to save R500 a month from the beginning of Grade 1.

(Note: this would be simply to cover future increases in school fees and not tertiary education.)

5. Start a fund

Every parent needs to be saving towards their child’s education unless they plan on inheriting a large fortune. To boost those savings, ask your family to rather add money to your child’s education fund than buying those expensive birthday or Christmas presents. After all, children need an education more than they need toys.

6. Invest for growth

If you are saving for 5 or 10 years before you will need the money, ensure that you invest in a fund that will grow faster than the increases in school fees. Cash-like savings will not be enough as they return about 5% at most, whereas school fee increases of about 10%.

Consider investing in a unit trust that has exposure to property and equity. A balanced unit trust would be a good option and several unit
trust companies offer investments from R200 to R300 per month.

7. Use the government bonus

This is a government initiative enabling you to save for your child’s studies towards an accredited qualification at either a public college or university.

You’re paid an annual bonus on the investment, which can be 25% of the money you save annually up to a maximum of R600 per child. If you save R100 a month (R1 200 a year in total), you therefore get another R300 a year.

To receive the maximum bonus of R600, you have to save R2 400 in total a year. Bear in mind that the bonus can only be used by the learner. You can also think about open a Fundisa Fund account at banks such as Nedbank.

8. Study loans

Most students have to consider study loans for tertiary education. Parents can assist by paying off the interest portion each month so that when the child graduates they only have to pay off the capital and not the other accumulated costs.

There are also government assisted financial programmes such as the National Student Financial Aid Scheme.

Here are a few other links you might find useful:

A parent's guide to schooling

The costly choice between public and private schooling

Old Mutual - Education plan

Nedbank - Planning Education

ABSA - Future Plans

Standard Bank – Fundisa

FNB savings plan

 
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