Make the most out of your financial planning for your child’s education.
For most parents, providing their children with the best
education they can afford is a number one priority. The proliferation of
private schools in South Africa is testimony to this fact.
According to a survey quoted on
Parent24 last year, in the ten years between 2000 and 2010, private
schools saw a 76% increase in enrolments . But the costs can be exorbitant.
Without taking into account pre-primary school or tertiary education costs, the
primary and high school fees for a single child could cost you in the region of
R400 000 for a public school and over R1 million for a private school over
Parenting magazines are filled with adverts for financial
products that can help – but finding your way around the different options can
be daunting. Here are five questions to ask your financial adviser when
discussing how best to provide for your children’s education in your financial
policy you’re discussing a savings plan, an investment or a life insurance policy?
Many parents set aside money in a bank account every month to save up for their
children’s tertiary education. Others invest funds in an education savings plan
or investment policy, where the funds are invested in unit trusts or other
investment vehicles that can potentially earn them higher returns than just the
interest they’d earn in a normal savings account.
But parents should also consider education
as a specific financial need when structuring their life insurance policy, says
BrightRock’s Executive Director: Marketing, Suzanne Stevens. Through their life
insurance cover, parents can make specific provision for the costs of their
children’s care and education should either or both parents no longer be able
to support their children financially because of an illness, injury or death.
If it’s a
life insurance policy, does it offer indemnity cover or stated cover? Some
life insurance policies that cater specifically for education offer indemnity
cover. This means the pay-out will be made directly to the specific education
institution, proof of the actual expenses will be required and the insurer can
set a maximum limit on the pay-out. Usually, with these policies, there’s
cross-subsidisation – so the premiums of clients whose children have lower
school fees subsidises those with higher school fees. Other policies offer
stated benefits. In this case, the person taking out the cover can choose the
pay-out amount based on what they can afford, with no cross subsidisation. The
pay-out will be made directly to the client or their beneficiaries – not to the
institution. And there’s no need to provide proof of the actual expenses.
cover grow over time? Consumer inflation (as measured by the Consumer Price
Index or CPI) is the rate at which costs for household goods go up every year.
But education costs tend to go up a lot faster – growing at between 2% to 3%
more than CPI yearly. It’s important to check whether your cover will be
growing to keep up with these rising costs. If you take out cover that grows at
CPI only, you could face a big gap – as much as 30% – between the pay-outs you
receive and the actual costs of your child’s education.
4. Does it provide only for education? School fees aren’t the only expenses you
need to think about providing for. Over and above costs like uniforms, books
and stationery, you also need to think about food and transport costs, sports
equipment, extramural activities and all the other costs that go hand in hand
with raising a child. It’s crucial that you and your adviser think about all of
these expenses, so you know your children are fully provided for if something
should happen to you. If the education policy you’re taking out caters only for
education costs, you need to ensure you’ve provided for all these other
expenses elsewhere in your financial plan.
5. When will the cover end? It’s important
to consider how long you want to provide this cover for. Some parents expect to
provide for their children only until they reach the age of 18 years or the age
of 21 years. Other parents may wish to provide for their child until they reach
financial independence. If your child plans to go to university, they may only
enter the working world at the age of 24. So check when the cover will end. And
if you do plan to make financial provision for cover
until your child finishes their tertiary education do, make sure you take
account of the significant jump in costs you may experience when your child
makes the transition from school to university. It’s not just the fees that may
increase, but other costs like transport and accommodation if your child will
be studying away from home, for example.