We all want the best for our children and one of the primary ways of ensuring this is through providing them with a good education! However, this goal is becoming increasingly difficult given the escalating cost of education. According to Statistics SA, the cost of education has been increasing at around 9% per year over the past 15 years – about 4% higher than inflation (as measured by the Consumer Price Index)! Unless your salary increases by 9% per year as well, it will inevitably become increasingly difficult and perhaps even impossible to afford paying for your child’s education.
‘Education is the most powerful weapon you
can use to change the world.’ - Nelson Mandela
If we were to consider the cost of financing a single child’s education from pre-primary to the completion of tertiary education (including a 1 year honours course), for a child born in 2015 and starting grade R in 2020, the approximate costs will be as follows:
The only way to alleviate some of the cost pressure is to start saving without delay! The growth that you can earn on an investment will significantly lower the impact of education fees on your budget – especially for the later schooling years. Be warned, just as compound interest can work in your favour when investing, it can also work against you when you are financing a loan. It is important to note that the quoted figures in the above example do not include the cost of financing.
Ideally you need to start saving for your child’s education as soon as he/she is born. Remember, the later you start saving, the more you will need to save and the bigger the impact on your pocket! For example, assuming a net 9% return on investment (after all fees and taxes), you would need to save approximately R1,450 p.m. (increasing at 9% per year) to cover the above calculated university fees alone (these costs exclude accommodation, books, travelling, etc.). If however you were to delay saving to, for example, when your child turns 10, this amount increases to a massive R7,500 p.m. to cover the exact same expenses! Scary isn’t it!
The harsh reality is that around 33% of South Africa’s youth, aged 5–24 cannot afford to attend school or further their studies – as per Stats SA’s latest General Household Survey. Do not let this happen to your children!
There are various ways to save, including Unit Trusts, Endowments, Electronic Traded Funds and others. Ideally, regardless of whichever investment vehicle you choose, you would need a significant exposure to growth assets such as equity and property in order to achieve that 9% return.
It is highly recommended that you consult with an independent investment advisor to assist you in making the best investment specific to your personal profile and your child’s anticipated needs. Having a professional in the field assist you can make a meaningful difference!
Author: Ettienne le Roux is an Independent Wealth and Investment Advisor at Reflect Brokers (Pty) Ltd – an authorised financial services provider in Cape Town. Please email him at firstname.lastname@example.org should you require assistance with putting an education plan in place or for any other financial planning needs. Website: http://reflectbrokers.co.za
The above cost analysis was based on the following research and assumptions:
Private school fees based on Bishops College (including pre-primary, primary and high school)
Public school fees based on Camps Bay pre-primary, primary and Camps Bay High
University fees based on a Bcom degree and Honours in accounting at UCT
All fees are increased by the average education inflation of 9% every year
All 2015 tuition fees rounded to the nearest R1000
For the detailed cost analysis report with all calculations please request the report by email to the above address.
The article is for general information only and cannot be construed as advice in terms of the Financial Advisory and Intermediary services act of 2002 (FAIS).