Balancing the Books: Get a Head Start on Saving for Your Child’s Education

2022 is set to be yet another challenging year financially with interest rates and fuel costs rising, potential electricity increases, and the knock-on effect these will have on the cost of living. 

With the academic year in full swing and children finally returning to school fulltime this week, we are reminded that the cost of education will continue to put a strain on already stretched budgets for many parents. Having a realistic plan in place to save towards this goal – and starting as early as possible – is essential to enable your child’s access to quality education.

Almost two years of pandemic-related rotational school schedules have resulted in learners being 75% to a full yearbehind on their school curricula, and an estimated 700 000 dropping out.

Access to quality education is a long-standing issue in SA, but it is a fundamental part of helping our youth realise their full potential and enable a future where they can live with confidence.

One of the biggest hurdles impacting parents’ ability to enable their children’s access to quality education is the cost, so it is vital to start saving as soon as possible.

Seeing your child through their schooling career – primary, secondary, and tertiary schooling – can cost upwards of R1.4 million in today’s money for public school and close to R3.5 million for private schooling, excluding university residency costs.

Online education quickly gained popularity when the pandemic necessitated a move to the virtual classroom and many parents are now choosing this option long term.

“Keep in mind that online education fees are for tuition only and do not factor in the extra costs such as devices, data, stationary, after care, extramural activities and uniforms. As such, it is important to consider all the costs and benefits – or consequences – of choosing online education over traditional schooling,” says segment solutions manager at Sanlam Savings, Farzana Botha.

“It can be overwhelming for parents to know where to start when it comes to saving for their children’s education. A qualified financial advisor will help give you the confidence that you are saving enough by predicting the future cost of fees and advising how much you need to put away each month.

 

Tools such as the Sanlam Goal Manager can also help parents quantify the cost of their child’s educational journey and then ensure that contributions keep pace, aligned with inflation. Historically, education costs have increased by 4% above general inflation.

Practically, this means that the money allocated to the cost of education needs to increase each year, even if the family’s household income hasn’t increased. As education becomes a larger proportion of a household’s budget, it can be an added stress in the planning process” says Botha.

As part of Sanlam’s ongoing commitment to helping children access quality education and enable them to live with confidence, Sanlam UCT Online High School scholarships will be awarded to almost 100 academically strong learners who may otherwise not have had the chance to realise their potential. This will cover 100% of their high school tuition over a five-year period.

Failing To Plan Is Planning To Fail

“You need to take a multifaceted approach to saving for a child’s education. Fees tend to increase by more than the general rate inflation, which means you need an investment vehicle that will provide inflation beating returns that will compound over time. Then you need to factor in other costs like extracurriculars like stationary, uniforms and learning materials,” explains Botha.

She adds, “If you are planning a road trip, getting in a car and just driving won’t get you to your destination efficiently. Using a map or GPS to plan and track this journey will make the trip easier. Likewise, quality advice from a financial advisor and using a tool like Goal Manager on one’s investment plan for education will help you identify exactly what amount is required and track your progress to reaching these goals.”

A real-life example

Refilwe’s son is four years old and already a skilled negotiator. She has started saving towards her future legal-eagle’s tertiary education, with R15 000 in a tax-free savings account and R1 000 added each month. A great start, but is it enough?

Using Goal Manager, she finds out that studying law at a SA university will cost around R52 000 per year for tuition only – over R400 000 for a 4-year degree. To meet this goal, Refilwe needs to save an extra R258 per month (R1 258 in total), increasing annually with inflation, until her son finishes his studies. If she had not started saving yet, she would need to save R1 342 per month.

The best time to start saving is now

To understand the true power of compound interest, Sipho Mncwabe, head of adviser transformation at SanlamConnect, explains why it is vital to start saving as early as possible.

“If you start saving R500 a month when your child is born and keep that up until they finish high school, assuming your investment achieves a 10% return annually, you have the potential to save more than R300 000 by the time they start university. Delay this until they start primary school, and you would have less than R140 000. If you wait until they start high school, you would have less than R40 000 saved. In other words, the later you start, the more you will have to save per month to reach the same goal.”

Understanding that our financial circumstances change, Mncwabe stresses the importance of choosing your investment plan wisely. “Make sure you have the option and flexibility to increase your savings as your affordability improves, and to inject ad hoc amounts as and when you are able. Traditional education plans usually come with an option to add an insurance element which ensures your monthly savings continues to be paid even if you pass away or become disabled before your child goes to university. You need to ensure that you discuss these options with your financial adviser.”

“Whatever direction you decide to take, be it online or traditional, public or private, the route you plan to get there will be a crucial determinant in whether you reach your goal. Having a professional in your corner will give you the confidence of knowing that you are doing everything you can to enable your child’s future,” concludes Botha.

All articles written by a STAFF WRITER have been checked and verified to the best of our abilities. Should you have any queries or concerns, please don't hesitate to email them to info@after12mag.co.za

Leave a Reply