What will your child’s future career be? Have you planned for their future education?

A good education is one of the most valuable things a parent can give their child. Have you considered the cost of this? It’s vital to start investing in your child’s future education as soon as possible.

adding up

Education is becoming increasingly expensive, says a financial planner. It has a higher inflation rate than general inflation, so you need to take this and other factors into account, such as:

• How much time you have – compound interest, when the interest you’ve accumulated gives you returns, needs time to work.
• Whether you’re saving for college or university, and where the educational institution is.
• Degrees differ in prices, with medical degrees costing more than a commerce or arts degree.
• Education costs also go beyond tuition fees and include items, such as computer equipment, accommodation and transport.

Investing in your child’s future education early can help you cope with the expense and will cost you less in the long run. If you delay saving until your child starts Grade 1, you’ll have to put aside almost two-and-a-half times as much every month, the financial planner advises.

He cautions against borrowing money to pay for education, as the cost of the debt adds to the overall cost of education.

Also read our article on the teaching children to manage money.

picking an investment product

To save enough, you need a suitable product and discipline. Financial advisers from Liberty and Old Mutual recommend choosing investments that will provide returns higher than education inflation. Investments should be left for the medium to long term to get the full benefit of compound interest.

Unit trusts

Unit trusts are a good option. Liberty describes unit trusts as investment products that enable you to invest in an asset class, such as equities or bonds, on the stock or capital market. Being exposed to market fluctuations means there’s risk involved, but you can access your money at any time and increase or decrease your contributions. Unit trusts also allow you to add lump sums without incurring penalties.

Education savings policy

If you prefer a structured savings plan with limited access, an education savings policy could work. There is a minimum and maximum investment period, and often a penalty if you cancel the policy before maturation.  Savings policies work better over a longer period, so it is advisable to set one up when your child is born.

Access bond

Another useful place to save is an access bond. This type of home loan gives you access to the money you’ve paid into the loan, over and above your required monthly instalments. Paying in extra lets you pay off your bond quicker and provides access to the cash. The rate of return is the same as the rate banks charge. However, there’s a downside – with the ease of access and flexibility, you may find yourself dipping into your bond for unnecessary expenses. Be disciplined.

Tax-free savings accounts

Tax-free savings accounts help you grow your money without paying tax on the growth of your investment (capital gains), the interest or dividends. The longer you leave it untouched, the greater the growth.

When you’re ready to withdraw, you can access the money, but the longer you leave it, the more it grows. No dividend, capital gains or income tax is payable if you remain within the annual threshold amount of R36 000 and lifetime limit of R500 000.

You can open a tax-free savings account for each of your children. You can make a lump sum or monthly instalments, stop and resume your contributions at any time with no penalties.

Student loans

Student loans are another option for paying your child’s future education. However, they may leave your child with debt that is payable once they finish studying.

For children studying full-time, parents will probably need to stand surety, and pay off the interest and fees. Once children have finished studying and secured a job, they can start repaying the loan.

Find out about financial planning for a special-need education.

start early and review annually

Whichever option you choose, you need start planning soon and revisit your plan annually. You can adjust it to accommodate rising costs, or revisit when your child’s plans for studying are definite. Without a plan, your child may go without the education they deserve.

top tips

1. Have a plan: work out estimated costs, pick an investment and invest monthly.
2. Schedule your debit orders to go off at the beginning of every month.
3. Check what guarantees are offered.
4. Ensure children are covered in your life insurance policies or are beneficiaries of any other policies.
5. Consult an accredited financial adviser for ongoing advice and guidance.  Advisers should be licensed by the Financial Services Board.
6. Ask family and friends to contribute towards your savings plan on birthdays or special occasions.

Disclaimer: This article is intended to provide a starting point for saving for your child’s education. For financial advice, speak to a qualified financial adviser or financial institution.