Wow – another festive period is over, and the children are going back to school this week in South Africa. Here in the UK where we relocated, schools already started, so you have a bit of catching up to do in terms of getting into a rhythm with school hours. But it’s nice to see all the smiley, familiar faces returning to school!
As parents, we all want the best for our children, and this often includes being able to give them the best education that we can afford.
Below I thrash out some of the common mistakes that parents make when saving for education, with some sage advice from Allan Gray, Sanlam and Old Mutual.
Mistake #1: Not doing your research
Perusing the terms and conditions of various financial products can be boring as hell, but if you invest in something you don’t understand you could get caught out.
Products typically used for saving for education include education policies with insurers, endowments, tax-free savings accounts and unit trusts. They all have pros and cons.
“There are many investment accounts and policies you can use to save for your child’s education. It is important to research the various options available, comparing costs, restrictions, expected returns and other product features and benefits,” says Saleem Sonday, head of group savings. Make sure you choose a product that suits your needs to avoid unwanted fees or tax implications.
If you are in need of more help, speak to a financial advisor. Got to findanadvisor.co.zato find one in your area.
Mistake #2: Dipping into your child’s education savings
If you’ve created a nest egg for your child and it’s grown to a considerable sum, it may be tempting to dip into it. Allan Gray, however, warns that while you may think it will be easy to ‘catch up’ at a later stage with additional contributions. But doing this means you will miss out on the full power of compound interest.
Sonday explains: “Time is an essential ingredient to successful investing. The sooner you start, the more time you have to make contributions and to benefit from the magic of compounding: earning returns today on the returns you earned yesterday.”
Mistake #3: Not budgeting for the long term
According to Statistics South Africa, education inflation (the rate at which the cost of education increases each year) has averaged 10% over the past 15 years – that’s 4% higher than general inflation.
Recent research from Old Mutual shows how much fees can get ramped up by 9% inflation. See below:
|Expected cost of one year of education||2020||2025||2030||2035|
|Public Primary or High School||41 100||63 300||97 400||149 800|
|Private Primary School||100 700||154 900||238 400||366 700|
|Private High School||161 700||248 700||382 700||588 800|
|University||69 900||107 600||165 600||254 700|
|*Costs are in Rands and based on education inflation of 9% per year. The amounts are rounded to the nearest hundred. Source: Old Mutual|
Not budgeting or planning adequately for the rising cost of education, and not accounting for education inflation, may put a lot of pressure on your monthly budget.
Put money aside during the year to help with next year’s tuition. If you’ve been exceptionally good at saving (perhaps you’ve added some or all of your bonus at the end of the year) why not consider paying off your school fees upfront. Not only will this put the pressure off but some schools are known to offer a 5-10% discount
Mistake #4: Using credit to fund education
When fees seem expensive it’s tempting to use your credit card. But things could soon spiral out of control, especially if you don’t pay it off in full.
“Although the power of compound interest works in your favour when you invest, the same mechanism works against you when you borrow and makes credit the most expensive option – especially if you are making use of an unsecured personal loan,” warns Sonday.
If you commit to a long-term savings plan when you child is born, it is less likely that you will find yourself in such a situation.
For more guidance on how to save for your child’s education, Allan Gray has launched a free saving for education email-based series. To sign up to the free series, visit https://www.allangray.co.za/saving-for-education/ Investors will receive the five-part series in a once-per-week email.
Mistake #5: Not maximising your rewards
Clicks, Pick n Pay and Woolworths are just some of the many retailers offering programmes that give you benefits in exchange for your loyalty. Some only award points after you’ve jumped through a few ‘hoops’ or spent a certain amount so it’s vital to familiarise yourself with the rules.
Old Mutual has one too – Old Mutual Rewards gives customers a percentage of their premiums back in points. You can use these to reinvest, to spend with a range of partners or to buy a voucher. If you’re smart, you’ll reinvest some or all of the money to use for school fees or back to school stationery needs!
Mistake #6: Not comparing costs
Do go to the same store for your school stationery? Well, you could be doing yourself and your wallet a disservice as you may be getting the same type of stationery for much cheaper. A recent report by Business Insider SA, and highlighted here on CapeTalk, compared a basket of stationery at various stores. The result was that Makro was the most expensive while Shoprite and Checkers offered more affordable items. If you don’t like travelling from one store to another, consider shopping around online.
Mistake #7: Not preparing for some hidden costs
Here, Kenosi Magosha, head of client solutions savings at Sanlam, points out a few unexpected costs of school:
- Devices:While the progression of education to include subjects such as codingis positive, the required devices are not cheap. Already, some parents are required to furnish their children with smartphones, tablets and/or a laptop to facilitate e-learning. That adds a significant layer of cost and it will be important to think of insurance for damage or loss to avoid further unexpected outlays.
- Stationery and uniform costs:Stationery starts at about R700 and a new uniform can easily amount to almost R2000 so exploring second-hand uniform can help with managing the costs.
- Fundraising fees:Parents can usually anticipate a once-off school fundraising fee. Alternatively, there’ll be bake sales and other ongoing fundraising efforts to participate in.
- School outings and extracurriculars: School outings usually add at least R600 or more to the year’s expenses, while extracurriculars can add up to anything from R1,500 upwards, per annum for participation and the equipment.
- The unplanned extras: From gifting a child’s favourite teacher to creating a costume for a school play, birthday gifts for friends especially if your child is a social butterfly – there are plenty of small, unplanned costs that arise.
In conclusion, here’s my tip on coping with the extras. Try and create a yearly calendar which is populated with teacher’s birthdays and school events – particularly the ones that are set to cost you. Some schools will already have their events planned for the year so try and nail them down in your diary as soon as possible so there are no financial surprises.