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With the unemployment rate at an all-time high in South Africa, it is critical for those of us who are parents, to be reminded of the importance of education. Providing your children with the best possible education, to develop a sought-after skill or trade, is only going to give them greater opportunities to find and/or create employment as entrepreneurs when they become adults.

With regards to financing your child’s education, you have a couple of choices:

  • Start investing money each month while your child is still young and watch your investment grow and earn interest from month to month and be left with sufficient funds to pay for tertiary education fees.
  • Or take out a loan, when your child finishes matric, to pay for each year’s tuition fees and be faced with high monthly interest rates and repayment instalments.

Let’s have a look at some calculations to show you why starting to invest money early on makes the best financial sense

Let’s say your child still has 10 years of school left and you want to start an investment to fund your child’s 3-year university tuition when they finish school. We used Old Mutual’s education calculator to work out some sums:

  • We used an average university tuition fee = R50 000 per year. *This amount excludes the cost of textbooks, stationery, board and lodging, food, transport and any other costs that may be incurred while your child is studying.
  • Number of years to complete an undergraduate degree = 3
  • Total amount of money required = R150 000
  • Number of years before tuition begins = 10 years
  • Would your contributions continue during your child’s tertiary education = Yes

Old Mutual’s calculator worked out that the estimated future costs of education in 10 years’ time could amount to around R388 000. To reach that required amount to fund the university fees, you would need to invest +/- R895.70 a month for the next 13 years.

*Please note:
Please note that the amount you will need to invest each month will have to escalate by 9% each year, in order to reach the required saved amount
This result, generated by the calculator, is based on the assumptions we used and is sensitive to the assumptions used.
It also includes the impact of annual outflows (education costs) on the interest earned on savings during the education period.
Please note that the amount you will need to invest each month will have to escalate by 9% each year, in order to reach the required saved amount
These calculations were recorded on the 14th December 2020.

Now let’s compare this to taking out loan of R300 000 when your child turns 18 and is ready to start university.

  • Interest rate: 18%. *We included an average interest rate of 18% on a short-term loan in this example.

Please also be aware that interest rates, charged on personal loans, do vary from creditor to creditor.

  • The loan term (number of months/years in which you will pay back the loan) = 72 months / 6 years*Please be aware that you can tailor your repayment term to suit your budget (from 2 years up to 6 years) 
  • Based on the above, your monthly loan repayments will cost you +/- R6 741.

These two examples highlight how investing towards your child’s tertiary education, while they are young and still at school, will save you thousands of Rand each month. The numbers speak for themselves!

So, what options do you have in order to save up for your child’s education?

With Old Mutual’s Education Plans, you can invest in unit trusts or tax-free savings plans, as a means to grow your money over the medium to long term. The plan should ideally be flexible in terms of the minimum amount you can invest.

Now, there are a few questions you can ask yourself before you settle on an investment option. How early do you want to start saving? How much can you realistically afford to save each month?

Old Mutual has a very user friendly education plan calculator which will help you work out your current financial situation and how you can efficiently invest into a fund without putting yourself under any financial pressure.

Please note that the Old Mutual calculator is updated regularly.

Here is how the education calculator works:

Step 1: Select the type of tertiary education you would like to save up for:

Step 2: Enter your specific goal details: we used the example of a young child, Thomas, who will be going off to study a 3-year BCom degree at University, in 10 years’ time when he finishes school.

Specific Tertiary Institution – You can enter the current cost of 1 year’s tuition (in this case it will cost an average of R50 000 for the 1st year of Thomas’ BCom degree at Wits) + the number of years the tuition is required (The BCom degree is a 3-year degree). You can also choose to continue with your monthly investment contributions while your child is studying.

Savings Period – This is the number of years before the tuition begins (In this case, Thomas’s parents have 10 years to save for his tuition fees (the time he still has left at school), and they will continue to add to the investment each month while he is studying (for an extra 3 years).

Existing Savings Towards Tuition – This allows you to add in your existing accumulated capital savings (Thomas’s parents haven’t accumulated any other savings for his tuition at this stage). As you can see in the below screenshot, there will be an annual increase in contributions of 9% and there is an expected annual growth of the savings of 8%. It is also expected that the annual education costs will escalate by 9%.

While this information is here to inform you, it is not, and does not, constitute financial advice. If financial advice is what you are looking for, it is best to seek the advices of an accredited financial adviser. If you are interested in speaking to an accredited Old Mutual financial adviser, to assist you with an education plan or any other financial objectives that you would like to achieve or discuss, submit your details below. 

*By completing the below form, you will be giving Old Mutual permission to make contact with you, in order to assist you with your education plan or any other part of your financial plan that you so wish to discuss.

Disclaimer: Old Mutual Life Assurance Company (SA) Limited is a licensed FSP and Life Insurer.

Ts & Cs Apply

Disclaimer

  • The above material is not intended as and does not constitute financial or any other advice. 
  • The material does not take into account your personal financial circumstances. For this reason, it is recommended that you speak to an accredited broker or financial adviser to consider all your options and draw up a plan to achieve your financial goals.

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