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Sending your child to university needs careful planning

16 March 2010 Nedgroup Investments

While most parents in South Africa place a high importance on ensuring their children get a college or university education, few are able to achieve this. Currently, only 15% of students currently graduate with their degree or diploma - making South Africa’s rate of graduation from university one of the lowest in the world.

According to Anil Jugmohan, an Investment Analyst at Nedgroup Investments, financial constraints are one of the key reasons for the low proportion of university or college graduates in the country, particularly with the cost of tertiary education having increased dramatically over the past 20 years.

In South Africa, the average cost for a university education is around R10 000 to R25 000 per annum – for tuition alone. As has been the case in the past, these costs are expected to increase faster than the rate of inflation.

This means that if your child was born in 2008 and goes to university in 2027, you are likely to need about R400 000 for tuition alone. Add to this the likelihood that most parents will have more than one child attending a tertiary institution at any one time and affordability becomes a major concern.

This demonstrates how necessary it is for you to plan ahead and save money towards your child's education. “Saving for your child's education should be part of a comprehensive financial plan and must start as soon as possible,” says Jugmohan.

One way to boost your chances of success is through Fundisa – a joint initiative between Government and the unit trust industry. It aims to encourage and incentivise individuals to save for a child’s tertiary education by supplementing contributions with additional funds.

For every R40 that you contribute to the Fundisa Fund each year the government will contribute an additional R10 (up to a maximum of R600). In this way, you are guaranteed a 25-percent bonus on your contributions. The money you invest as well as the bonus from the government is likely to earn further interest.

“This becomes a very significant contribution in the long-term and is one of the reasons that we support this initiative. Anyone can start now – and with relatively small monthly payments - accumulate an attractive lump sum by the time the child is ready for university. While saving for your child’s education may be your primary goal, the real prize is watching them reap the benefits that a college or university degree offers,” says Jugmohan.

One of the obvious benefits of graduating from university is the financial reward. According to a 2009 study by the South African Labour and Development Research Unit, South Africans who obtain a degree earn on average between 2.5 and four times more than people who do not complete schooling and are three times more likely to get a job.

Anil Jugmohan provides the following tips to young parents saving for their children’s education:

- Start early: The longer the investment period, the more likely the fund will grow without too much strain on the budget for other expenses.

- Monitor your returns and ensure that your returns are keeping up with inflation.

- Don’t make withdrawals. The effect of compound interest means any withdrawal will severely curtail the final amount in the fund.

- Encourage your child to contribute to their education with money from part time and holiday jobs. Not only will this help the final fund amount but it also instils in your child an understanding of the importance of saving.

- Research possible scholarships and bursaries. There are many funding grants available and you should see if any are applicable to your child.

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