Understand your goals
Your child’s education could cost anywhere between R500 000 and R2 million. It’s easy to see then, that it would be a difficult goal to attempt to save all that money within the first seven years of your child’s life.
The idea behind an education trust is to fund the gap between your salary increases and the increase in school fees - which tend to rise well above inflation. While you may be able to afford your child’s primary school years, by the time they reach high school those annual charges will be 120 percent higher than the fees you paid in Grade 1. This is due to inflation and the higher cost of secondary education.
The best way to provide for your child’s education is to get your finances in order today:
Watch the debt
Many parents complain about the cost of education, yet have no qualms about paying R5000 per month on a luxury vehicle. Your child’s education is far more valuable, and education doesn’t depreciate! When you buy a house, car or take on any form of debt, make sure you do not do so at the expense of your child’s education.
Have a plan
A good start is to enrol your child in a school that you can afford on your current salary. Once they start Grade 1, immediately 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 R1000 per month but Grade 8 costs R1500 per month, you’ll need to save R500 a month from the beginning of Grade 1.
Note: this would be to cover future increases in school fees and not tertiary education.
Start a fund
Every parent needs to be saving towards their child’s education. To boost those savings, you could ask family members to add money to an education fund rather than buying birthday or Christmas presents. Children need an education more than they need toys. They’ll thank you in the long run.
Grow your savings painlessly
Use the Save More Tomorrow plan to boost education savings. In their book Nudge, authors Richard Thaler and Cass Sustein recommend using some of your salary increase each year to boost savings.
For example, if you receive a 7% salary increase, sign a debit order immediately to put 2% of your additional income into a savings account. Every year commit to increasing that debit order by a further 2% of your salary. Within five years you could be saving 10% of your salary without having to cut back on your spending.
Another way to do it would be to commit to saving an amount that increases by a few percent ahead of inflation each year. A 9%-10% escalation on your monthly savings plan, for example.
Invest for growth
If you are saving for five or ten years, 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 around 5% at most, compared to school fee increases of around 10%.
You can invest in growth unit trusts through the GateWay Investment Plan. It gives you the flexibility to contribute regularly, whenever you have some spare cash or as a combination of the two. With a GateWay investment, you can invest in a range of unit trusts on one platform at a very competitive fee.
Invest for protection
The Education Builder investment from Liberty gives you the ability to save for education, and protects those savings in the event of the death or disability of the primary breadwinner. This investment offers more than just education savings. It offers protection.
Use the government bonus
Fundisa is a government initiative enabling you to save for a child’s tertiary studies. You’re paid an annual bonus on the investment which can be 25 per cent 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’ll get another R300 per year. To receive the maximum bonus of R600, you have to save R2 400 in a year.
The bonus can only be used by the learner. You can withdraw your own money at any time, but you’ll then lose the bonus.
Open a Fundisa Fund account at Standard Bank, or visit the Stanlib website.
Study loans
Most students have to consider study loans as a means to funding their tertiary education. Parents can assist by paying off the interest portion each month. This means that when your child graduates, they’ll only have to pay off the capital and not the accumulated interest. There are also government-assisted financial programmes such as The National Student Financial Aid Scheme.