Start planning now to meet education costs

With the start of the new school year parents should be looking at innovative ways of financing their children’s education including the new Fundisa Fund, says Di Turpin chief executive of the Association of Collective Investments.

“Education costs continue to rise and parents need to consult their brokers and financial advisers on how to best to pay for future education costs - both school and college.

“A financial adviser will undertake a needs analysis providing a range of options available to parents who should begin planning now even though high school or college may be years away. It is essential that parents identify how much cash they will require and have a financial strategy to meet these education costs.

“Collective Investments such as money market, income or long term equity funds with their high inflation beating returns can help parents meet this financial challenge. One of the most important exercises undertaken by the broker or consultant will be that of asset allocation – deciding how much of your savings to allocate to fixed interest, equities and cash.

“A diversified fund such as one of the lower risk Prudential funds is worth considering for those who want some equity exposure and the higher returns without the full market risk. Those with less than 3-5 years to invest should choose a money market or income fund rather than equities. An investment in equities requires time to build value but over the longer term should show the highest returns. Investors can also consider the exchange traded funds which mirror the market performance.

“It is essential that parents invest regularly – one of the easiest methods of doing this is via a bank debit order – with the amount being automatically being deducted from their pay each month.”

At the end of last year the Collective Investments industry launched the Fundisa fund – a joint private sector - Department of Education iniative to help parents pay for their children’s education.

Investors in Fundisa receive up to a quarter of what they save each year as a bonus. For example, if R1 200 is saved a year, the fund will add another R300 to the investment. Minister of Education, Naledi Pandor, has committed R20 million to a three-year pilot project to test if there is demand for a savings scheme like the Fundisa Fund, while the industry has donated R14 million.

Investors must have a Mzansi or similar account and be South African citizens. They can invest in Fundisa through Nedbank, Standard Bank and Stanlib as well as ABSA and the Post Office shortly.

The Collective Investments industry is working closely with the National Student Financial Aid Scheme (NSFAS). Fundisa will be complimentary to existing funding mechanisms provided by NSFAS in the form of accessible student loans for qualifying low-income families.

The Fundisa invests in low risk instruments such as money market securities, bank deposits and government bonds.