As a parent, you always want your child to have a prosperous future and to receive the best education. If you plan ahead and allocate funds in advance, you can ease your financial pressure and achieve that goal. In many countries, there are financial institutions that provide savings schemes to help parents establish specific education funding for their children.
Here are five things you should consider when preparing to fund your child’s future education.
1) Determine How Much You Need
How much money you need to be able to send them to a school of your choice, will depend on whether you want your children to go to public or private school and whether they plan to go to University or College.
Some parents may plan to send their children to private and international schools, but they must be wary of rising tuition fees. For example, in Australia, private school fees can cost upwards from $10,000 per year, per child (modest fee). But, if you want to send your child to overseas schools and universities, the annual tuition and living expenses are much higher and, that doesn’t include the extras for uniforms books and school camps, etc. Therefore, parents should first determine how much they need to save before making a formal savings plan.
There are many calculators available online to help you estimate the cost of child education.
2) Know Your Limit
No doubt you want to give your children the best chance in life, but make sure you don’t bite off more than chew. Your monthly allowance for your child’s education should not be a burden on the family budget. In general, your monthly education expenses should be 10-15% of your family’s total monthly income, so you can get enough other daily expenses, such as mortgage repayments. Try to save more as your financial situation improves.
3) Start As Early As Possible
The sooner you start, the better. Not only do you have more time to save for your child, but if you choose a savings plan investment, you can also enjoy the benefits of compound interest (capital growth over time). However, if you wait too long, you will need to save a higher amount each month to reach your savings goal. Always use a separate bank account or investment plan for your child education savings, to separate the funds from your other household spending and savings.
4) Assess Your Risk Tolerance
Child education is a long term savings goal. You should assess the risks you are willing to take and choose the right investment accordingly. Bank Accounts and TermDeposits involve lower-risk but the rate of return on interest is also low, unable to keep up with the increase in tuition and inflation rates in private schools. Instead, consider growth investments to aim for a higher long term return and capital growth, not just income returns. Managed Funds, Shares, and Property are higher-risk investment options and may offer attractive returns but are more suitable for investors with long term timeframe of 5 years or more.
The performance of an investment will fluctuate over time, especially in the short term and will depend on a lot of facts, but especially the amount of exposure to growth assets such as property and shares. The more exposure to these types of assets you have, the higher your long term returns should be, but the more volatility you will likely experience.
5) Protect Yourself with Insurance
It is important that you also purchase the correct health and life insurances to ensure that your family is financially safe in the event of sickness or accident (to you or your child!). The sum insured of a life insurance policy should not only cover your family debt but also include an extra amount earmarked for future education expenses, in case something happens to you.
Remember, raising money for your child’s education requires long-term efforts. If you unsure of what to do, or which investment will best suit your savings goals, then seek advice from a financial adviser.
Disclaimer: This information provided is general in nature. It is based on the knowledge and experiences of the author and not intended to be taken as financial advice. It does not take into account the objectives, financial situation or needs of you or any other particular person. You need to consider your financial situation and needs before making any decisions based on the information. You may have to modify the information and do further research, for it to suit your personal financial situation. Therefore, before acting on the information, it is recommended that you consider its appropriateness to your circumstances or consult a financial adviser, tax advisers or legal professional to assist you in doing this.