Saving for Your Child’s Education

The average cost of education at a government school, from pre-primary to matric in South Africa can add up to around R1.5 million per child. This is a substantial amount of money parents would need to have access to during the course of their child’s educational career, yet according to Old Mutual’s Savings and Investment Monitor 2017, 56% of South Africans are currently not saving for their child's education. To avoid running into financial trouble, it is always advisable to save for your child’s education, even if they have yet to enter the educational system. With this in mind, here are some tips to think about before, or even after you start saving.

Start saving early

Whether your child has already started school, or has yet to be born, saving for their education as early as possible is key. If you can only start saving a small amount, it’s better than nothing. According toJohn Manyike, Old Mutual’s head of financial education, “It’s a long-term commitment; you wouldn’t start saving for retirement one or two years before you are due to retire. You need to start saving as early as possible, even if, to begin with, you can afford to put away only a small amount; the important thing is to start.”

Consider the type of school

Depending on your preferences and available finances, you need to consider what type of school you’d ideally like to send your child to. Would you prefer your child to attend a government or private school? Would they be a day-boy or girl, or would the distance from your home mean they need to become a border? A private school can be considerably more expensive than a government school, so your preferences will affect your final choice of school.

According to Martin de Kock, director at Ascor Independent Wealth Managers, it is vital that parents do their homework when considering types of schools. Once the research has been done and you’ve considered the type of school you’d like to apply to on their behalf, you will be better prepared to figure out how much the fees would be, and then budget how much you’d need to save in order to afford them.

Choose an investment policy

As saving for your child’s education is a long-term commitment, financial experts advise that an investment fund be used as a savings portal to eventually pay for fees over time while the remainder of the money gains interest. There are three types of investments available:

Unit trust - This option allows you to invest your money in a range of assets managed by a financial advisor. The investor is not obliged to invest for specific amount of time but it is advised to invest money long-term in order to benefit more from its interest. A unit trust is flexible as it allows the investor to increase or decrease their monthly contribution as they wish, as well as take the money out whenever it is needed.

Tax-free savings account -  This type of investment is similar to a unit trust but the investor is not charged any form of tax if contributions are R33 000 or less a year or R500 000 or less over a lifetime. Investors may take their money whenever they need it.

Endowment policy - This type of savings policy requires the investor to make monthly contributions over a set period of time, and only when that period has come to an end will they be paid out with a lump sum. The minimum savings period on offer with this policy is five years. Interest on the money accumulated is taxed at a rate of 30%.

Factor in day-to-day expenses

Day-to-day expenses include extracurricular activities, aftercare, uniforms, stationary, school transport, school lunches and outings. It’s important to factor these extra expenses in on top of fees, as these activities and supplies are an important part of your child’s development and enjoyment of school.

According to Moneyweb, parents should understand what activities their child would like to take part in before signing them up to extra activities, in order to factor the expenses into their budget, and ensure their child gets the chance to take part in the activities they’d like to take part in. This way you’ll have both a happy child and a functional budget.

Think about fees payment

Depending on the school, you may have access to a discount if fees are paid upfront. If you have the right amount already saved, this option is more budget friendly and will save you money in the long-term. If you are unable to pay the fees upfront, de Kock advises that it is not worth borrowing the money to pay the upfront fee as this can make fee repayments more expensive in the long-run. If you are unsure about whether to pay upfront or whether a Personal Loan might be a viable option, seek the advice of a financial advisor who should be able to recommend how best to pay your child’s fees.

When considering the education of your child, there are a number of expenses to budget for. From fees and extracurricular activities, to outings and uniforms, the education of your child can become a costly affair. Saving for their education should be considered a priority as it decreases the financial burden felt by parents, and provides cover for unforeseen expenses relating to their studies. Keep these tips in mind when you begin to think about the education of your child, and you’ll be on your way to being financially prepared to offer them the best possible start to life.

Disclaimer: This article is provided for informational purposes only and should not be construed as financial or legal advice. Hippo.co.za and its affiliates cannot be held responsible for any damages or losses that may occur as a result of this article.