The basic building block of education saving
South Africa’s headline inflation surged 4.5 times between 1990 and 2010. Over the same period the cost of education shot up a staggering 15 times. Your clients must begin saving for their children’s education as early as possible.
Parents want to bestow a decent education on their children. Unfortunately the cost of quality education is spiralling. Jaco Gouws, Product Marketing Actuary for Old Mutual South Africa says the total cost of 13 years of private schooling (assuming your child starts Grade R today) will be a gut wrenching R1 039 752. And he says three year’s university tuition will run to approximately R350 000 by 2030.
Basic savings for education
These scenarios highlight the need for your clients’ to save for their children’s education. How should they go about it? One option is to invest through Fundisa, a joint initiative between the Association for Savings and Investments SA (ASISA), government and three of the country’s leading financial institutions. Fundisa is the first savings product designed specifically with education in mind and is structured to assist low income earners to provide for their children.
According to Janete Nel, marketing manager at ASISA, the Fundisa Fund has grown phenomenally since its 2008 launch. “There has been a steady increase in the number of investors opening accounts, with many investors saving on behalf of more than one beneficiary,” she says. At 30 September 2011 there were 10 845 Fundisa investors saving on behalf of 16 675 beneficiaries.
Baby steps
Fundisa is offered by a number of financial institutions including StanLib, Nedgroup Investments and Absa Investments. StanLib says their average investor contributes lump sums in the region of R1, 664 and monthly debits of R165.88. Negroup’s average monthly debit order is R147 with lump sums of R838, while Absa says clients chip in between R200 and R300 per month with occasional ad hoc contributions.
The industry’s challenge is to encourage saving for education in an environment where few individuals make adequate retirement provision! “While much work has been done around measuring retirement contributions the same cannot be said for education specific savings,” says Nel. “Consumers tend to use traditional savings products such as endowments and unit trust funds when saving for their children’s education, making it impossible to determine how much has been ring-fenced for this purpose.”
Enter the intermediary
Financial advisers should point out the high cost of education to their clients. “When meeting with a client, the financial adviser is obliged to conduct a financial needs analysis,” says Nel. “At this point consumers with children should list education as one of their savings goals, together with retirement and other financial needs. If consumers are made aware of the high costs of education and of the products available, they are far more likely to ask for them proactively.”
Consumers often struggle to find enough money to provide for life cover, disability cover, household insurance, a mortgage bond, vehicle finance, retirement savings and education. The usual balancing act ensues.
“It is important that the financial adviser looks at the family’s financial needs holistically,” concludes Nel. “While saving for education is important, it shouldn’t come at the expense of life and disability cover, for example!” There are many products advisers can recommend to clients who wish to save for education. Fundisa offers an important entry level savings mechanist ideally suited to lower income markets and outlying communities
