The best time to start saving for a child’s tertiary education is when they’re born. This will allow you to take full advantage of the magic of compounding.
We ask Nicole van den Munckhof, a certified financial planner at investment firm Independent Securities, to do some number-crunching and advise on suitable investment products.
Tip: Discover how savings and investments can be crucial tools for funding your child’s future education.
There are many variables
“You must consider fee differences at tertiary institutions, as well as the field of study; medicine costs more per year than, say, an arts degree,” Van den Munckhof advises.
“You may also consider other means of funding, such as a student loan or a bursary.”
To cover a four-year degree at a typical South African university, here’s what you’re looking at…
Tuition fees and living expenses
Van den Munckhof says tuition fees are roughly R70,000 annually, and books cost about R15,000. For a four-year degree you’d need about R340,000. In 17 years, assuming annual inflation of 6%, this will be about R1 million.
You may also need to factor in accommodation, meals, and pocket money.
In 17 years, you’ll need to have saved R2.2 million to cover these living expenses over four years, bringing the overall amount to R3.2 million. This excludes clothing, medical aid, transportation and unforeseen expenses.
How much do you need to save?
Assuming inflation at 6% annually and growth at a conservative 8% annually, Van den Munckhof calculates a flat amount to save each month, factoring in an annual inflation-linked increase.
She also calculates how much you’d need to save if you start when your child is age 10, versus when they’re very young. In other words, you’ll have only seven years to save versus around 17. The difference is significant.
Table: Monthly saving for a child’s tertiary education
| Flat monthly amount | Monthly amount, increasing annually by inflation (6%)** | |
| Start saving at birth/very young | ||
| R1 million* (tuition and books) over 17 years | R2,300 | R1,400 |
| R3.2 million (all inclusive) over 17 years | R7,380 | R4,500 |
| Start saving when child is 10 | ||
| R1 million over 7 years | R8,900 | R7,600 |
| R3.2 million over 7 years | R28,500 | R24,200 |
*Figures rounded. **For inflation-adjusted amounts, add the annual inflation percentage to the monthly savings amount. Year 1: R1,400 monthly; Year 2: R1,484 (R1,400 + 6%) monthly; Year 3: R1,573 (R1,484 + 6%) monthly; etc.
What products to use?
“Over 17 years, a broad-based, low-cost exchange-traded fund will give you flexibility and provide the best chance of inflation-beating returns,” says Van den Munckhof.
“Set up a debit order to ensure you invest monthly. This will also allow for rand-cost averaging, which means your entry into the market is spread over time, as opposed to just one point in time,” she explains.
Tax-free savings products are an option, but not recommended because the child would not be old enough to get full benefit from the tax advantages.
Advice to take away
“What’s important is starting early and being consistent. I recommend partnering with a financial adviser who understands your circumstances,” Van den Munckhof concludes.
Tip: Facing unexpected expenses? Consider applying for a personal loan.