Give your children an advantage: start saving for their education now

Financially, January and February are the toughest months for South African parents. Apart from regretting your impulse buys over the festive season, there’s the annual rude awakening about the rising cost of education.

Says Jaco Gouws, Product Marketing Actuary at Old Mutual South Africa: “Some people o­nly become aware of the increase in educational expenses when they have to pay for their children’s uniforms and stationery at the beginning of each year, but covering the cost of education is best planned years in advance.” His advice: arm yourself with info using the new generation of o­nline tools and if you haven’t begun yet, start saving for your kids’ education today.

Do the sums
“The fuel price may fluctuate, and the Finance Minister may raise or lower taxes o­n luxuries, but with education inflation running at around 9% per year, the cost of education will o­nly go up.”

If your child started grade 1 at a public school this year, you can expect to pay around R450 000 for their 12 years of schooling, while a private school could cost around R1.5m, o­nce uniforms, learning materials and extramural activities have been added.

A three-year degree at university will cost around R350 000 in fees alone, excluding travelling, accommodation and allowances.

For many parents, those are scary amounts. How will you pay for it? The best plan is to start saving when your child is born. If he or she’s born today, you’ll need to save R1 500 each month for public schooling and a three-year degree, if you increase your premium with education inflation, and R3 200 each month if you keep your premium level.

To pay for private schooling and a three-year degree you’ll need to start saving R3 800 per month. That’s if you increase your premium to keep pace with education inflation. But if you opt to fix your premiums, you’ll need to save R8 100 per month.
“That amount can seem terrifying, but it’s important to act, and to empower yourself with knowledge o­n education costs by using the new generation of o­nline calculators,” says Gouws.

South Africans are not alone
In South Africa, the sad reality is that 40% of first-year students drop out of tertiary education because of financial difficulties. But the high cost of education isn’t an exclusively local phenomenon: in the UK, the cost of raising a child, including education, has risen by nearly 60% in the last 10 years. In the US, deep concerns have been expressed over student loans, which have now passed o­ne trillion dollars. Students now owe more o­n loans than Americans owe o­n credit cards or car repayments.

Best not to bank o­n a bursary
Relying o­n quick fixes like loans and bursaries can backfire badly, says Gouws. Instead of counting o­n a bursary or scholarship that may not materialise, rather assume that you’ll need to pay for your child’s entire education. If a bursary is awarded, you can enjoy it as a windfall for your finances. Although few people can save enough to cover an entire tertiary education, the more you can save and the less you have to borrow for education, the better.

Gouws points out that while a number of financial service providers offer student loans, it can take years to pay off these study loans. That monthly overhead can make young graduates feel like their lives are o­n hold and prevent them, for example, from buying property or investing in their own children’s education.

What’s more, some institutions won’t lend money for part-time study or withhold certain benefits from part-time students.

“It’s far better to start saving early for education than to hope for a bursary your child may not necessarily secure, or to borrow money for study fees. Preparing for your child’s education starts with empowering yourself with accurate information about the costs.” o­nline planning tools and financial advisers can provide you with the information and guidance you need.