Another year is almost gone and soon schools will close for the end-year holiday. Perhaps your little one started school this year, or he or she may be going to high school next year. As a parent, you want to give your little future leader every opportunity to excel, but school and tertiary fees (especially university fees) can be crippling. Fortunately, you have the power to plan ahead, says Sonja du Toit, financial adviser at Sanlam.
Saving for your child’s education is probably the last thing on your mind when you bring your little bundle home from hospital, but the truth is the sooner you start, the better off you’ll be. “Planning for school and tertiary fees from birth ensures that you have the maximum amount of time to invest, and you can take full advantage of the power of compound interest (earning interest on interest). Starting early also means you can start with a smaller initial premium, to accommodate all the expenses of having a new baby, and then increase it as your budget becomes more manageable,” says Sonja.
There are many different ways you can save for your child’s tuition. Most insurance companies offer endowment policies specifically aimed at education savings. The benefit of such a product is that you have limited access to your money during the investment term, which supports disciplined savings.
A linked investment product (LISP), which is an investment in unit trusts, is also a good option. In a LISP you may choose to make a one-off payment (also referred to as a lump sum investment) or monthly contributions.
Another option is to invest in an interest-bearing savings product, such as a unit trust fund with transactional capabilities. It’s important to note, though, that easy access to your savings in this kind of product means you need a lot of self-discipline to ensure your investment stays on track.
Talking to a financial adviser will help you determine how much to save and choose the savings option that is right for you, your needs and your budget.
So, how do the numbers look? Based on the assumption that you save R250 a month from your child’s birth and earn an investment return of 9% per annum after fees and taxes, you can expect:
- At age 5: Projected investment value of R18 683 (total of R15 000 invested)
- At age 12: Projected investment value of R62 876 (total of R36 000 invested)
- At age 18: Projected investment value of R128 936 (total of R54 000 invested)
If you save R250 p.m. until your child turns 5, and then leave it invested until your child turns 18, the projected investment value is R57 279, from just R15 000 invested. As mentioned, an important element of saving is time. It is better to start small than to delay until you can afford to save a bigger amount. Once started, stay committed and increase the monthly amount whenever you can afford to do so.
With a little planning, you can afford to give your child the best possible education, right through to university.
Sanlam Life Insurance Limited is a licensed financial services provider and a registered credit provider.