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Saturday, February 1, 2014
Unsustainable system

At the start of every New Year, we feel the strings on our purses being pulled. Luxuries must be cut just to keep up with the rising cost of rent, food, electricity and transport; not to mention the long list of children’s education expenses. And with education inflation surpassing general inflation, the future won’t get easier. The long-term solution? Start saving today for your children’s education.

“In the famous words of our late president Nelson Mandela: Education is the most powerful weapon you can use to change the world,” says Sinenhlanhla Nzama, Investments Marketing Actuary at Old Mutual. “We all want the best for our children and this means getting them a good education to ensure that they fulfill a greater purpose in their lives.”

The Old Mutual Savings and Investment Monitor revealed that 54% of South African parents say they do not know what the future cost of education will be and that only 40% are saving for their children’s education. “This is alarming when you consider that a good education can end up costing hundreds of thousands of rands,” adds Nzama. “Our stats showed that people are tightening their belts and education is one of the main areas where budgets are cut.”
Nzama adds that the tough reality is that in 2014, one year’s education could cost between R23 000 and R42 000, depending on the level (primary school, high school, university) and type (private, public) of education. A 2033 forecast will see you spending between R118 600 and R215 500 for one year’s education (see table below).
If your child is starting grade R this year, the combined cost of education is expected to be R950 800 for public schools and R2 207 000 for private. This includes primary school, high school and a three year university qualification (see table).

Do not panic, rather empower yourself with information and plan.
“Whether you are new parents, a single parent or an established family, the key is to start saving early,” says Nzama. “Life can be very demanding so parents have to be aware of the future cost of quality high school and university education. The later you start saving, the more you will need to save per month.”
For example, looking at the figures in the table and assuming a 10% investment growth before fees, you need to save about R460 a month for university tuition (excluding accommodation, books and travelling costs) if your child is born in 2014. However, this is about R870 (close to double) if your child is already 10 years old! These monthly savings will also need to be increased by 9% a year going forward, to keep up with education inflation.

Investment vehicles to save for education
Unit trusts. (otherwise termed ‘collective investments’). Many people choose unit trusts for long-term investments as there is a lot of choice as well as funds that specifically focus on beating the rate of inflation by a certain percentage. This is important because education inflation is higher than normal inflation.

“Unit trust investments are ideal for people who require flexibility and access to the funds, however you must be disciplined and avoid the temptation of dipping into your child’s funds,” adds Nzama.
Savings policies. These are fixed for a certain period of time, say 5 to 15 years, depending on when your child will go to school or university. You can either pay fixed monthly premiums or make a lump sum payment into the policy.
You have limited access to the savings and generally have your savings invested in a wider range of the leading unit trust funds of your choice. You can also choose to invest in some of the available life funds that offer minimum guarantees. These life funds are only available from life assurance companies.
Many policies offer a protection of premiums in the event of the death or disability of a parent. This means if you were to die or be disabled and unable to work, the insurance company will pay the premiums for the remaining period.
Fundisa. This is a government initiative enabling you to save towards an accredited qualification at either a public college or university. You’re paid an annual bonus on the investment, which can be up to 25 percent of the money you save annually up to a maximum of R600 per child. If you save R100 a month (R1 200 a year), you will get another R300 a year. To receive the maximum bonus of R600, you have to save R2 400 a year. The bonus can be used only the learner. You can withdraw your own money but will then lose the bonus.
“Start early, even if it’s a small amount each month - it will always go a long way in the future after some investment growth,” concludes Nzama. “Speak to your financial adviser who will help you choose the appropriate product and give you advice on how much you should save. This will put you on the right track to securing a good education for your children.”

Note to editors
The figures on the cost of education are based on selected ex-model C government and private schools and universities. The projected annual school-fees are increased at a flat rate of 9% annually. To view the online planning tools for education savings go to www.smartmax.co.za

Copyright © Insurance Times and Investments® Vol:27.2 1st February, 2014
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