Tips for parents on how to save for your child’s education

Unfortunately, the impact of rising inflation and interest rates is severe on parents who find themselves struggling to keep their heads above water. They are presented with higher mortgage and car finance payments, as well as rising electricity prices. It is more difficult for a couple, even those earning a dual-income, to keep up with the high levels of inflation and a higher cost of living.

In addition, the cost of school fees and tertiary education has increased by more than CPI over the last couple of years, directly increasing the percentage cost of education in relation to our salaries. The average increase in fees for pre-school, primary school, high school, and tertiary studies range between 10% and 13%.

We often make the mistake of budgeting only for the school fees and do not consider the bigger picture. School clothes have become enormously expensive. Although it makes out a substantial portion of the annual school expenses, it is most often not budgeted for. Other costs that need to be considered may include aftercare, extra lessons, transport, stationery, the cost of extracurricular activities, school tours and trips, concerts and clothing or gear for these activities. Learning materials and textbooks are usually provided as part of the school fees, but it sometimes happens that parents can incur additional costs here as well. Textbooks however form a big cost component in tertiary studies.

Factors that you need to consider before you start saving:

Understand that education will get more and more expensive with time and consider which schooling options will work best for your child, in your community and according to your household finances. Nowadays there are many alternatives to traditional schooling which include online and home-schooling that can form part of your considerations.

Do research on the schools in your area and find out what the average school fees, as well as the average fee increases are for these schools. Remember that cheaper school fees do not necessarily mean subpar education - this is why research is so important. Attend opening days and see how your school fees will be appropriated and whether that specific school’s value proposition will hold any value to you and your child.

As your child grows older and starts moving into a direction that they would like to pursue, do research on the best tertiary institutions that will cater to his or her needs and what their fees are. The cost of tertiary fees varies greatly based on the type of diploma or degree. This can mean paying anything between R20 000 and R100 000 per annum for an undergraduate degree. The cost of studying overseas is exponentially more, not to mention the living cost.

As mentioned above, do not just take the fees into account, remember that there are many hidden or supplementary costs that need to be considered. When you have a clear idea of what these costs entail you can start formulating your goals and the timeline for these.

When to start saving:

The sooner you start to save, the better. It is also never too late to start but it is extremely important to save consistently and to stick to a plan. Ideally one should start saving before or when your child is born but otherwise as soon as you can.

Keep in mind that your investments should align with the short-, medium- and long-term goals that you have formulated. The longer the term, the more compound interest can be earned and the greater the probability of inflation beating returns. If you have a short-term investment it will have to be invested more conservatively and hence the smaller your chances are of obtaining real returns.

How to start:

As with anything else, start with the basics. Start with getting control over your household budget and do not fall into the trap of increasing your lifestyle when you get a raise. Try to minimise and pay off your debt, especially short-term debt, as soon as possible as this will reduce money spent on interest payments rather than saving. Remember that every rand counts. We often need to remind ourselves that there is a distinction between our needs and luxuries and that we need to prioritise certain things.

Your child’s education is far more valuable than for example a luxury car, and unlike that car, education doesn’t depreciate. Also remember that the definition of luxury is subjective, but it is ultimately determined by your household finances. It is not how much you earn, but what you do with what you earn, that counts. We often think about a budget as a limitation but in fact it is the most important tool that can lead to financial freedom.

The next step would be to determine what the cost of the education and all supplementary costs would be in today’s value in order to formulate your goals. Set realistic savings goals and consult a Certified Financial Planner who can assist you with formulating a short-, medium- and long-term plan in order to attain these goals and identify the best investment options that are suitable to your specific needs.

Yes, you need to factor in inflation when formulating your goals but do not get discouraged by what you may feel is an unattainable figure. In some instances, it is unlikely that you'll be able to save the full cost of your child’s tertiary education fees, while also simultaneously paying for their primary and secondary school fees. You can still attain your defined goals if you have a practical financial plan in place and stick to the plan as far as possible. Try to commit to increasing your savings each year with inflation or the percentage raise that you received.

In an ever-changing world, our situations and goals will also change, and it is therefore imperative to review your plan regularly to make sure that you are on track to attain your goals and that the investment options are still suitable to your needs.