Private education fees top R2 million per child
Above-inflation increases in education costs and inadequate financial planning coupled with the changing nature of education leave many families struggling to put children through the private education system.
Discovery Life estimates that the present value of private education fees – including creche and tuition at a private school and a public university – is around R2.2 million per child.
The current cost of putting a single child through SA’s private education system from crèche through to the end of their tertiary education is around R2.2m, financial services group Discovery revealed in a recent White paper titled Extending Shared Value to Education. Drawing on internal data, Discovery indicates that around R5 722 must be saved monthly to fund education for one child from primary school level, while families need to save on average R750 per month from birth simply to fund one child’s tertiary education fees. These figures are based on schooling fees increasing at 10% a year. “For the average South African, this means that they would need to start saving a few years before their children are even born,” the report reads. According to the calculations, average tuition fees across public and private primary schools currently sit at around R20 000 and R100 000 respectively, while tuition fees at the most expensive public and private high schools in South Africa can exceed R40 000 and R250 000 a year respectively. “Given the current pace of education inflation, this means that for a child born today (2017), their final year of schooling will cost around R600 000 alone at the average private high school,” Discovery notes. Discovery Life Research and Development head Gareth Friedlander told a media round table on 22 November that the R2.2m figure needed to finance a child’s private schooling career is an “astounding” statistic. The changing demographic profile of first-time mothers makes this finding even more sobering. According to Discovery data, the average age of first time-mothers in SA has increased by 10% over the past 15 years to 26 years old. There are currently more first-time mothers over the age of 35 than under the age of 25. “While having children at an older age may allow for a couple to build up more savings before the child is born, it also means that they are likely to have a financially dependent child by the time they reach retirement age. “This could result in many individuals having to work longer into retirement or consume their retirement savings to pay for their children’s tertiary education,” Discovery states. In addition, education inflation is outpacing salary growth. The group reports that, in South Africa, education inflation has outpaced headline Consumer Price Inflation (CPI) by between 2% and 4% a year.
5 tips for saving for your child’s education
1. Start early
South Africans should start saving for a child’s education as soon as possible – even before the child is born.
Investors should also consider when they plan to have a child.
In a lot of countries women are having babies later in life. At Discovery Health, the average age of first-time mothers is 30. According to the Office for National Statistics, more babies were born to mothers older than 35 than younger than 25 in 2014 in the UK.
Some people argue that you have more time to save if you have a child later in life, Van Wyk says, but it also means you become accustomed to more luxuries and will likely need to cut back spending.
“Start saving early. You cannot discount the importance of compound interest.”
Rather than buying big Christmas gifts or birthday presents, grandparents can also play a part by signing an investment debit order for education purposes.
2. Consider the type of education
There is a perception that private education is exceptionally good, but the difference between private and public school fees may not necessarily justify the added financial burden. Parents need to do their homework.
Also decide which universities or tertiary institutions you want to send your children to, calculate what the cost will entail and use this as a point of departure.
3. Consider ownership and the type of investment
A lot of people prefer to invest money in the child’s name, but it is important to keep in mind that once the child turns 18, he or she can technically use the money for anything – not only for tertiary education.
Therefore, he usually suggests that parents invest funds in their own names.
Parents could also consider a tax-free savings account, which allows annual contributions of up to R33 000 and a maximum of R500 000 over an individual’s lifetime. All the investment returns earned in the accounts are 100% tax-free and the money can be withdrawn at any point.
Depending on the parents’ specific circumstances, usually suggests the use of unit trusts, preferably low-cost exchange-traded funds.
There are also products that are specifically tailored to educational needs that investors could consider.
But whatever investment vehicle parents choose, it is imperative that the underlying investments should have sufficient exposure to growth assets and that it should not be invested in a money market account for the long haul.
This is important to ensure that the investment grows ahead of inflation over time. According to Statistics South Africa, education CPI has consistently outpaced the headline consumer price index (CPI) between 2009 and 2015.
4. Consider payments carefully
Some schools offer discount if school fees are paid upfront in advance, which could provide some relief to overburdened budgets, but if parents need to borrow money to pay fees in advance, it probably won’t be worthwhile unless the discount is substantial.
Rather consider using part of your December bonus to pay fees in advance where it makes sense, he says. Also keep in mind that when school fees are paid in advance, it will provide some relief in your monthly budget.
5. Plan for the future
While risk cover is generally a grudge purchase, parents should plan for the possibility that they may die or become disabled and that they may not be in a position to earn a monthly income, typically by purchasing life and disability cover.
Disability cover usually pays a lump sum whilst an income protector will pay a monthly income.
Apart from an income protection policy that can cover monthly expenses in the case of disability, it may be a good idea to also provide for a capital lump sum that can be invested for the benefit of kids who still need to attend school and university or college.
Testamentary trusts are often set up in a parent’s will to hold assets on behalf of minor children and to provide for their education when parents die.
If you need further advice and planning towards your child's education goals and other financial needs then contact me Warren Basel on 082 490 5182 , email warrenb@oraclebrokers.com or schedule a free, " no obligation " consultation with me - click below
