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Who can still remember when everyone in the neighbourhood went to government schools and paying school fees was optional? Private schools were for the privileged and university meant taking out a loan.

So, what’s changed?

Well, for one thing, government schooling isn’t free anymore, and private schooling is definitely more expensive than university. Recently we saw an Old Mutual article stating that it now costs R3 500 a month to put your child in a government school and R8 500 a month for private schooling (This is the estimated 2020 cost).

How can that even be possible? And if you have three children in a government school, where are you supposed to find R10 500 every month?

For most of us, the one chance at a better life is a good education. What do you tell your child when there’s no money to finance their dream of becoming a doctor? According to the 2019 Old Mutual Savings and Investment Monitor, 55% of parents are not saving a cent towards the dream.

According to Old Mutual, if your child starts Grade R in 2020, with education inflation sitting at 9% every year, it will cost you around R1,6 million to get them through matric and a 3-year university degree. Private schooling doubles this. It’s madness!

There are only three ways to keep your head above school fees:

  1. Have fewer children. Having 10 children might sound like a great retirement plan, but not if they can’t find work.
  2. Supplement your salary with additional income (rent out a spare room in your house/ make stuff and sell) to absorb the increasing costs of education. The biggest challenge these days is that is your income and your job are never guaranteed
  3. Start saving as much as possible as soon as possible. We can already hear someone saying, “Yeah, but we can only save R200 a month which is R2 400 a year which is R24 000 after ten years”, but the secret to investing is to start early so that you can enjoy more growth. R200 a month invested for ten years and growing at 10% a year eventually becomes R40 291.

But enough of that for now.

Old Mutual has this nifty education calculator which gives an estimation of how much it is going to cost to put your child through university.

Here’s what the landing page looks like:

Old Mutual Education Calculator

After you click on the green education calculator button the following screen pops up:

Old Mutual Education Calculator

If you already know where you want your child to attend and the cost, then select the top radio button. If it’s still way too far in the future, select the bottom radio button. Then click NEXT.

If you selected a specific tertiary institution you will see the following screen:

Old Mutual Education Calculator

Old Mutual Education Calculator

 

  1. Enter the current cost of first-year university fees under current cost.
  2. Then select the term of the degree – 3 years, 4 years, or 5 years.
  3. Then enter the number of years between now and when they start studying.
  4. It will ask whether you’ll continue to make monthly contributions to your investment while they are studying. Select either Yes or No.
  5. Below this, you indicate the current value of any existing savings made towards education.
  6. And next to that, indicate how much you are currently investing every month towards education.
  7. If there is an annual increase in the amount you invest, enter the percentage here.
  8. Alongside it, you should indicate the percentage of growth you expect from your investment. The lower the return you expect, the more you would need to save. The higher the return the less you need to save. We suggest leaving it at the default.
  9. Below is the expected annual inflation rate and the expected annual education cost escalation. Once again, use the default.
  10. Then click the CALCULATE button.

Which brings us to the result screen.

Old Mutual Education Calculator

This screen shows two amounts:

  • your estimated future education costs which is shown as R302 625 in our example and
  • your estimated total return on your current investment is shown. In our example, this is shown as R110 066.

If you enter a zero amount for current savings, the calculator works out how much you need to save on a monthly basis in order to cover the cost of R302 625. It uses the assumptions which you previously inserted.

You can amend the calculation simply by scrolling back up and recalculating.

Of course, none of this helps unless you act. If you would like a call from an Old Mutual Financial Advisor, simply leave your details below.

Please like, rate and share this post with your friends who have children.

 

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