When you were young your parents worked hard to save for your tertiary education. Times have changed and these days you need to save for every day of your child’s schooling – and that includes primary, secondary and tertiary level! Sit down and pull out a notebook for a lesson on how to save the money you need to invest in the education they deserve.
When to startThe golden rule is to start saving as soon as your child is born. If you can manage to pay your child’s primary school fees out of your monthly or annual budget you will have a savings time line of at least 12 years to save for their secondary education.
Note that some parents also pay school fees out of their annual bonus. While this takes pressure off your monthly budget it is not a reliable plan as you may change employers and not all companies offer a sizeable bonus, if any at all.
Savings optionsThere are several savings options available to you:
FundisaThis is an educational savings account introduced by the government to help you save for education. Geared towards students from low-income families, the fund also features a “bonus” payment by the state into your savings account each year based on how much money you have saved. To receive the maximum bonus of R600 you would have to save R2 400 per year or R200 a month. In order to qualify for Fundisa one has to fit the criteria of the means test for the learner applying to save in the Fundisa fund and that is that their annual household income must be less than R180 000 a year or less than R15 000 a month. The means test, however, only applies to the learner and not to the people contributing to the account so a high-income earner can easily open a Fundisa account for a child from a low-income household.
Unit trustsUnit trusts are an ideal long-term investment. When you invest in unit trusts you invest in a combination or one of four different asset classes namely - property, equity, cash and bonds. The asset class that you invest in determines the risk profile of your unit trust fund, be it conservative, moderate or aggressive and everything in-between.
For example a fund that only invests in equities would be considered aggressive whereas a fund that has exposure to all four asset classes would be more conservative as your investment is diversified. Your choice of fund should be in line with your appetite for risk.
You could also save in a unit trust that caters specifically for education. Benefits of a specialist education unit trust could include flexible payments, the option to skip payments for up to a year and a tracker that calculates whether you need to change the amount you are saving in order to reach your savings goal.
Bank savings accountsShop around and compare interest rates as well as fees. However, the interest rates on bank accounts are typically lower than other savings options.
RSA Retail Savings BondsThese are long term savings bonds that you can buy from any Pick ‘n Pay, Post Office or directly from the National Treasury. You can buy a fixed-rate bond or an inflation-linked savings bond. The interest rate you earn is then either determined at the time you take out the bond or it is linked to the inflation rate. For example, if you took out a five-year fixed rate bond today you would earn interest at a rate of 8.25% while a five-year inflation-linked bond would earn you interest at a rate of inflation plus 1.25%. The minimum investment amount is R1 000. One of the main drawbacks of the RSA Retail Savings Bonds has been that it is a once-off investment amount. However, the Minister of Finance recently announced that recurring deposits will soon be allowed.
Steep increases in the cost of education means it is not unreasonable for parents today to fork out the equivalent of their own tertiary education costs for high school fees alone. Make sure you do your homework and save so that your children can afford to do their homework.