Tertiary education is extremely expensive, and even more so when your child has dreams of becoming a doctor, or lawyer for example. As a parent or guardian financing these dreams is often a concern. But it needn’t be if you plan ahead.
Justmoney touches on the best ways to save for your child’s education, to avoid them having to take out a student loan, and what they may entail.
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“Helping your children by investing for them could be seen as a luxury, but with the cost of education soaring, it’s increasingly becoming a necessity,” says Discovery in a recent press statement.
Discovery did the following breakdown: “A 2016 report from City Press indicated that education for a child starting grade R in 2016 and matriculating in 2028 would cost approximately R253,000 at average fee-paying schools, R676,000 at upper-income former Model C schools, and R3.7 million at private schools. And that’s just the bill before tertiary education.”
In saving towards any goal what’s vital to remember is that it’s relative to the goal period.
Let’s start saving
“Any saving or investment should align with short-, medium-, and long-term goals, and these goals may change over time. Paying for a child’s secondary or tertiary education would be a long-term goal when they’re in diapers, but a short-term one if you’re starting while they’re in their final year of high school,” adds Discovery.
Here are a few ways in which you can start saving today:
- Education savings policies: These are typically offered by most providers in the financial services industry, from banks to insurers.
“With endowment policies, a monthly contribution is made for a specified period and a lump sum is paid out at the end of the period. The minimum investment term is generally five years. For higher-income earners, endowments potentially offer greater tax efficiency because they’re taxed at a flat rate of 30%,” adds Discovery.
Here it’s best to do your homework and evaluate different policies to see whether they’re suited to your financial needs. If you need guidance in this department, it’s best to enlist the help of a trusted financial advisor.
Another important consideration is protecting the investment. Life cover then becomes a vital product to have as this provides for the expense of your children’s education when you’re no longer able to provide.
- Unit trusts: This offers you simple and cost-effective access to the share market through a variety of equities. These are typically available through most financial institutions.
“Typically, when saving for education you want to ensure that the asset class you’re looking at has the best chance of performing well over a long period of time,” says Discovery.
According to Easy Equities, equities have been known to provide the best safety net against inflation.
If you’re interested in investing in a unit trust, click here.
- Tax-free savings accounts: This is an easily accessible option, offered by most banks, that allows you to open the investment in the name of your child. It guarantees your capital investment and is an effective way to save for your goals, because any interest, dividends or capital gains will be free of tax.
It also gives you flexibility as you don’t have to commit to making future contributions.
This option enables your child to have a R30,000 annual tax-free limit. Money withdrawn can only be paid out into a bank account in their name. You’ll also need to be aware of donations tax, if applicable, adds Standard Bank.
“With the power of compound interest, a relatively modest investment should more than cover the cost of your child’s education,” Discovery says.
- Fundisa: This government option is designed for lower-income earners and is run through the National Student Financial Aid Scheme and the Association for Savings and Investment South Africa.
“This option is specific to parents who earn below R180,000 annually. This also has the added advantage of a top-up bonus. Which is a reward of as much as 25% of the amount saved per year, up to a maximum of R600 per child. The minimum contribution is R40 per month, and there’s no maximum. However, only the first R2,400 saved per year will qualify for that top-up bonus,” says Discovery.
Remember, investing in your child’s education is an investment in his or her financial future.