Secure Their Future
Start Saving for Your Child’s Education Today

By Dylan Rodrigues

 

Parents always want the best for their children, and this is no different when it comes to their education. The ever-rising cost of schooling and tertiary education makes it essential for parents to plan ahead. Whether you are aiming to cover school fees, university tuition, or both, the earlier you start, the more manageable the financial commitment becomes.

 

1. Start Early and Save Consistently

The sooner you begin saving for your child’s education, the more time your money has to grow through the power of compound interest. This means your returns start earning their own returns, significantly boosting the overall amount over time. Starting early also means you can begin with smaller contributions and gradually increase them as your income grows. Consider setting up a dedicated monthly debit order into a unit trust investment account to build a consistent habit and improve discipline.

 

2. Understand the Cost of Education

Education inflation in South Africa typically outpaces general inflation, with private school fees and university costs increasing annually. Do your homework: research current tuition fees, factor in ancillary expenses such as textbooks, uniforms, technology, and possible accommodation and adjust your savings goal accordingly. A realistic target will help you stay focused and committed.

 

3. Choose the Right Savings Vehicle

There are several savings and investment options suited for education planning:

• Discretionary Investments (in the parent’s or child’s name): These flexible investment accounts, such as unit trusts, allow you to save and invest according to your own strategy. Holding the investment in your own name ensures you retain control over the funds, while investing in your child’s name may have tax advantages. It is worth keeping in mind that should the investment be held in the child’s name, at age 18, they gain legal access to the funds – which might result in money being used for purposes other than education. To avoid this, consider withdrawing or restructuring the investment before they become majors (older than 18).

• Tax-Free Savings Accounts (TFSAs): Ideal for long-term savings, all interest, dividends, and capital gains are tax-free. An individual can contribute up to R36,000 per year, with a lifetime cap of R500,000.

• Endowments: While they are less flexible than discretionary investments – with restrictions on access normally within the first 5 years – they can help instil discipline by locking the funds in for educational purposes. Endowments can also provide tax benefits for high-income earners, as well as benefits on estate planning (executor fees if there are nominated alternate owners or beneficiaries).

• Education Policies: Although not an investment account, these policies are primarily risk cover products that may include life or disability insurance intended to provide for your child’s education should something happen to you. It is important to distinguish these from savings vehicles – they are more about protection than investment growth.

 

4. Invest According to Your Time Horizon

If your child is still very young, and your goal is to save towards high school or university, you may benefit from a more aggressive investment strategy, such as equity-based unit trusts. As they get closer to high school or university, it is more advisable to shift towards more conservative investments to reduce risk and preserve capital.

 

5. Involve Your Children in the Process

Part of financial literacy is understanding the value of money and what it is used for. Talk to your child about your efforts and importance of saving for their education, even in simple terms. As they grow older, involve them in reviewing account balances or discussing budgeting for school expenses. This teaches responsibility and appreciation for financial planning.

 

Final Thoughts

Saving for your child’s education is a long-term goal that requires discipline, patience, and strategic planning. By starting early, choosing the right accounts, and involving your children in the process, you not only secure their academic future, but also lay the foundation for sound financial literacy. For guidance tailored to your personal goals and timeline, speak to one of our Certified Financial Planners.

 

Read more about Ascor® Financial Planning Services

 

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