This is HOW you can PUT MONEY AWAY for your children’s STUDIES
EDUCATION is the best GIFT you can give your children, but will you be able to AFFORD to pay for their studies one day?
The PROJECTED 9,5% increase in the cost of education is higher than the ESTIMATED inflation rate of close to 6%.
That MEANS that parents whose children are in Grade R this year can EXPECT to pay a total of roughly R1,33 million (public tuition) or R3,01 million (private tuition) for their children’s EDUCATION. The two figures are for 12 years at school plus a three-year university degree.
Should your child want to go to UNIVERSITY it can cost you on average R64 000 a year now, R95 000 by 2022, R176 000 by 2030 and R253 000 by 2035. These PREDICTIONS are based on an annual ESTIMATED inflation of 9,5% – and this figure can be even MORE. Sadly 54% of urban South Africans aren’t SAVING actively toward their children’s EDUCATION.
START EARLY and REAP the BENEFITS
The IDEAL is that you need to START SAVING for each of your children’s education when they’re BORN. Compound interest (interest on top of interest) is the most IMPORTANT INVESTMENT principal, so the LONGER you can keep the money invested, the BETTER.
If you’re THINKING of starting a FAMILY you can start an education investment even BEFORE your children are born. If you can afford it, put about R1 000 away every month and adjust for inflation by adding 10% every year for 18 years. Thanks to compound capital GROWTH it can grow to be a considerable amount of MONEY over 18 years.
You can START early and small and then GROW your investment. It’s far BETTER to start with say R200 a month and then INCREASE it from when your child is young than to start with R1 000 a month but to stop contributing after a few months because you can’t afford it. Money that’s meant for EDUCATION needs to grow and will over time CONTIBUTE a large amount to your child’s FUTURE.
Most EXPERTS view unit trusts as the BEST way to save towards a child’s tuition fees. In the long term RETURNS on unit trusts are consistently higher than returns on cash savings and USUALLY also better than those on educational policies.
A unit trust provides a much BETTER chance of beating inflation over LONGER investment periods than a typical bank savings account. But the returns from most unit trusts aren’t guaranteed. There are many kinds of unit trusts to CHOOSE from, with risk profiles to suit the specific investment timelines of each INVESTOR and their objectives.
A DISADVANTAGE could be that during hard times you can EASILY withdraw from a unit trust, thereby depleting your savings. Another disadvantage is that unit trusts AREN'T tax-exempt, unless it’s part of a tax-free savings investment. A SIGNIFICANT amount of your interest (in other words, profit) from unit trusts however IS tax-exempt.
If you can only afford SMALL amounts but still want to save for education, this INVESTMENT tool is a good alternative. It’s a TEAM EFFORT between The Association for Savings and Investment South Africa (Asisa), the government and various financial institutions. Fundisa is BASICALLY a unit trust with a lower risk.
The MINIMUM monthly instalment is R40, and Fundisa is in a sense subsidised in that an AMOUNT of 25% of everything you save annually is ADDED to your investment. The “bonus” however is capped at R600 a year. The fund is INTENDED for households earning R180 000 or less a year. But higher income earners can INVEST on behalf of an underprivileged child.
You can buy an EXTRA property like a townhouse or flat with the INTENTION of using the rental income to make a PROFIT or to sell it at a profit later. But aim towards something with LOWER levies, rates and taxes.
TAX-FREE savings ACCOUNTS
These are part of a DRIVE to encourage South Africans to save. The ADVANTAGE with this type of account is that your SAVINGS aren’t taxed, up to a limit: up to R33 000 a year (or R500 000 in a lifetime) saved is tax-free. Anything MORE than that is taxed at 40%.