Every little bit counts

Gareth Friedlander – Head of Research and Development at Discovery Life

One of the subjects that we touch on very rarely from a financial planning perspective is saving towards education. Yet, over the past three years, this has been shoved into the spotlight through the FeesMustFall movement. The biggest issue is that higher education is simply too expensive to be accessible by the largest portion of the population. By all accounts, the missing middle is growing in size and stature on a yearly basis.

Prolonged agony

While the university students do have a valid point regarding the cost of tertiary education, one cannot simply look at that side of the argument and ignore the rest. Education in South Africa is getting expensive as a whole, and fewer parents are able to afford to send their children to institutions of choice. 

Speaking at a Discovery Life Media Round Table, Gareth Friedlander – Head of Research and Development at Discovery Life – pointed out that the company recently did research into the costs of providing a child an education. 

The company estimated that providing a child with an education from creche to the end of their university degree, where primary school and high school were spent at private institutions, tipped the scales at R5 million. 

While many of us appreciate that education is expensive, how many of us have taken the time to come to terms with this number? 

Contributing factors

Friedlander pointed out that there are a number of contributing factors that are driving this. 

According to Friedlander, the first factor is that children are starting school earlier. Where in the past, the role of the mother traditionally was spending time with children until they were four or five years old and then sending them to creche, there are a growing number of families where both parents work, and children are sent to creche from the age of one or two years old. 

The second factor that one has to bear in mind is that there has been a sharp increase in supplementary expenses. Most schools require children to have tablets which need to be upgraded as the child moves through school. There are also sporting and cultural activities that cost money as well as school uniforms. According to Friedlander, this could add as much as 50% to core tuition in some cases. 

The biggest concerns

Perhaps the two biggest contributing factors are left for last. Children cost money and married couples are a lot more selective about when they are having kids to make sure that they are financially stable enough to take on this massive responsibility. 

While this looks like a responsible approach on the one hand, on the other it is doing some damage. By having kids later (in their 30s), Friedlander points out that parents may be running the risk of funding for their children’s education where they should traditionally be ramping up their saving for retirement. For those saving towards retirement, this is traditionally seen as the period from 45 years to 55 years old. 

The second factor is that the cost of education is far outstripping CPI inflation. This means that parents need to increase their education savings contribution by CPI + 2%. This is not always possible when salary increases track CPI. 

Enter the protagonist

This once again highlights the increasingly important role that financial planners and advisers play in the daily lives of South Africans. 

Like with a budget, parents need to sit down with their kids and establish the basics. What career does the child want to pursue later in life, where does the child need to study for this career and how long will a degree in this field of study take. 

Speaking at the round table, David Kop – Head of Advocacy and Consumer Affairs at the Financial Planning Institute – said that if this is done, financial planning towards education can become holistic. 

Choices that define us

Kop added that at the end of the day that it is about lifestyle choices. 

For most families, it is about a financial planner or an adviser sitting with a family and asking the hard questions about purchasing a house or a car over a more expensive option. Its about planning for future expenses and then adjusting current lifestyles accordingly. 

However, there is another factor to be drawn into the equation. A significant number of young families are part of the sandwich generation. Saving for a child’s education while providing not only for the family, but the extended family, is tough and in most cases not possible for these families. And if there are savings, they are not at the levels to achieve the numbers discussed earlier. 

Editor’s Thoughts:
Parents should not be scared of the cost of providing their kids with a quality education, but it is important to have an idea of what the costs are so that expectations can be managed. The worst thing to do is to do nothing; financial planners and advisers need to sit with their clients and stress the importance of saving towards education no matter how little the savings are. Every little bit counts. Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.