Parents want the best for their children. This includes paving a way for their tertiary education to provide them with a head start in life and their future career. However, a university education doesn’t come cheap, and the last thing you want, is to face debt to fund your child’s hefty tuition fees. To avoid a financial crunch, here are five tips to help you plan for their education so that you’ll be financially equipped when the time comes.
- Take stock of your funds - Have you provided enough for your child’s tertiary education? The first step is to review your existing funds, including your savings, life insurance policies, unit trusts, and other investment schemes. Note down their current value, as well as the projected value when your child turns 18 or 21. Take into account factors like rate of return for your savings, and the projected value for life insurance plans. You can also get an idea of how much you’re likely to need by using the online child education fund calculator.
- Estimate your child’s tuition fees - Work out the likely cost of your child’s tertiary education. Begin by listing the present cost of tuition fees and living expenses, before factoring in the future value. For instance, an academic year (2014/15) in National University of Singapore’s (NUS) Bachelor of Business Administration programme1 requires a tuition fee of S$9,250, for Singaporean students eligible for MOE’s tuition grant. Based on an education inflation rate of 5% - 6% per annum, the course could cost you S$27,505 more per annum in 20 years’ time.
- Calculate the shortfall - Simply put, how much savings do you need to top-up before you meet your child’s future tuition fees? Let’s take a fictitious character, Dennis Tan, as an example. Dennis has a one-year old daughter, and he estimates he needs about S$93,170 for her Singapore university education 20 years down the road. Assuming Dennis’ savings and investments are expected to grow to S$11,000 by then, he still has a savings deficit of around S$82,170 to meet. An overseas education would cost many times more, and requires more thought and planning.
- Research before you invest - Many insurance firms have savings policies tailored to help you with your child’s tertiary education. Before you invest your hard-earned cash into any of these products, it is advisable to assess your financial goals. It’s also good to determine the policy’s return rates, how much money you can comfortably set aside, and the monetary risks you are willing to take if investments are involved. Examples of investment options available include unit trusts, endowment plans, bonds, and equity investments.
- Diversify your investment portfolio - If you are a risk-averse investor with a preference for risk-free options, its low investment yield may be a disadvantage. Especially so if you have a great deal of ground to cover to meet your financial goals. You may wish to consider diversifying your portfolio by putting a portion of your assets into instruments that earn a higher return, such as dividend paying stocks. By spreading your eggs among different baskets, you increase your overall investment yield while maintaining a moderate level of risk exposure.
If you’re unsure of the type of products that’s best for you, have a chat with your financial advisor.