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Investment tools parents can use to save for kids education

13 October 2010 FNB

The costs of education has risen faster in recent times, even outstripping the rate of inflation in some cases, and the trend of rising education costs continues.

“In the recent past the costs of education have risen at an alarming rate, which means that some parents cannot afford to educate their children. We know the importance of education and our advice to parents is to start building savings early for their children’s education,” says Lezanne Human, chief executive officer of Investment Product House at First National Bank.

Experts in the field say parents can expect to pay up to R1.5 million to take their children through 16 years of schooling and University. Parents with more than two children may find it particularly difficult to afford their education.

Many consider tuition as the main education costs, and yet there are other costs such as boarding, school uniforms, textbooks, school tours, lunch money, transportation and clothing that are often not taken into consideration. Collectively, these costs are substantial and can be a financial burden for parents who have not made adequate savings.

A four year degree could cost anything up to R100 000, excluding transport fees. Over a period of four years the total costs of a degree could reach staggering figures.

Human says, “Parents can look at various tools to build savings for their offspring.”

Fixed Deposits: This is an investment tool where money is placed with a bank for a fixed term at a fixed rate of interest which remains unchanged during the period of the deposit. Fixed deposits give investors the peace of mind knowing that their capital is secure and they have a competitive return over the investment term.

Unit trusts: Unit trusts are collective funds which allow investors to pool their money in a single fund made up of various asset classes, thus spreading their risk, getting the benefit of professional fund management, and reducing their dealing costs.

Share Portfolio: The stock market is offering great buying opportunities - especially for long-term investors - to build a strong wealth portfolio. The equities market has had a good run in the recent past, posting strong returns of up to 40%.

“We view savings as a journey that can never start until individuals take the first step. Rome wasn’t built in a day and it will take time to build savings. However, the efforts of those who persevere will be greatly rewarded,” concludes Human.

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