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Five ways to save and invest for your child's education

Your children are likely to spend 16 years of their lives in education. For complete family financial planning, you should plan to take care of costs before they even start school with a child education savings plan. So from the moment they start nursery to the day they graduate from university, you have your finances covered, and school days are happy days for all.
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Five ways to save for education

Parents want the best for their children. This includes paving the 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, you need a long-term education savings plan for your child. Here are five tips to help you plan for your education saving so that you’ll be financially equipped when the time comes.

  1. 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. Consider 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. And estimate if there is a crunch and you would need further investment for child education.

  2. Estimate your child’s tuition fees – Work out the likely cost of your child’s tertiary education. Begin by listing the present worth of tuition fees and living expenses before factoring in the future value. For instance, the tuition fee for an academic year of the Bachelor of Business Administration program in a foreign university branch campus in Malaysia requires RM20,000, based on an education inflation rate of six percent per annum; the course could cost you RM64,143 more per annum in 20 years. It will be easier for you to have a solid family financial plan by estimating exact costs where your child’s education savings has a separate investment portfolio.

  3. 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, Alex Tan, as an example. Alex has a one-year-old daughter, and he estimates he needs about RM236,000 for her four years of the foreign university branch campus education 20 years down the road. Assuming Dennis’s savings and investments are expected to grow to RM100,000 by then, he still has an education savings deficit of around RM136,000 to meet. An overseas education-saving investment would cost many times more and requires more thought and planning.

  4. Research before you invest – Many insurance firms have education 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, risk appetite, family financial planning, and child’s educational aspirations. It’s also good to determine the policy’s return rates, how much money you can comfortably set aside for your child’s education plan, 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.

  5. 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 that could help you gain higher returns on your investments that would give a sense of security to your family especially give your child education protection plan for the future.

Chart a secure future for your child here.

If you’re unsure on the types of education-saving investments are best for you, have a chat with our Life Planning Advisor.

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