One of the biggest worries for parents nowadays is how to fund their children’s education, which does not come cheap.
In addition, as with everything else, education expenses, be it in foreign and local colleges/universities, private primary and secondary schools, are expected to trend upwards in future.
According to CTLA Financial Planners Sdn Bhd managing director Mike Lee, the trend is upwards as far as education costs are concerned.
“In predicting the future, we can only use assumptions such as cost and inflation factors in child education planning.
“The general increase for local studies is about 3% per year and foreign about 5% and this applies to a general business degree of three years,” he tells StarBizweek. (see table)
The increasing cost is due to rising inflation as a result of hikes in food and accomodation expenses, travelling costs, books and exam fees as well as salaries, among other factors.
E.T. Education Services Sdn Bhd managing director Matthew Gan sees an average increase of between 5% to 7% annually in education costs for studies locally and in countries such as Britain, United States, Australia, Canada and Singapore (excluding foreign exchange rate fluctuations).
“Moreover, there are certain years where the increase can be in a lump sum instead of percentage depending on the circumstances,” he says.
Whitman Independent Advisors Sdn Bhd managing director Yap Ming Hui has tagged a 6% inflation rate per annum for the cost of a university education locally or overseas.
“Parents nowadays have higher expectations when it comes to their children’s education unlike before so there is a tendency to send them to private or international schools and foreign universities.
“So education becomes more expensive,” he says.
For example, business for private school Sri KDU has been flourishing since it opened its doors in 2003 with enrolment increasing to some 2,400 students currently from 500 when it first began.
Marketing manager Rina Thiagu-Kler says school fees for primary and secondary education range from RM15,000 to RM17,000 per annum with an average 10% increase in fees every two years.
Sri KDU is also expanding – its international school for secondary education is expected to be ready next year. In general, primary and secondary education in an international school is in the range of RM30,000 per annum.
So how can parents have sufficient funds for their children’s education? Lee says three things have to be considered simultaneously to ensure that money is available when needed - investment for returns such as units trusts, equities and property; insurance for protection and will needs to be written to protect the child or family in case the breadwinner dies.
“The common advice is to save and invest your money as early as possible. Let your money grow with your child,” he advises.
He says one should save according to what one can afford for the time being which is a good start. As one’s income increases, then the savings goes up as well.
“This way, parents do not feel the pressure and find that starting early will allow a smooth continuation of the funding over the years,” Lee says.
AbacusForMoney.com founder and chief executive officer Carol Yip says the ideal approach is to start saving as much cash as possible and then multiply it by investing in investment vehicles to hedge against the increase in cost of living and education.
Yip says there are several approaches to savings and investment strategies. First, choose a strategy where the investment product has capital growth and if possible has income yield in the long term, for example, property investments.
Second, have a portfolio of several types of investment assets that will give you investment returns over a period of time to meet the education costs. Third, select an investment strategy that enables you to buy and sell your investments for capital growth such as company shares and venture capital investments.
“More importantly, the chosen investment strategy must suit the parents’ style and preferences in managing investments because it is a lifelong pursuit until the child is financially independent and able to make a living for himself or herself,” Yip says.
Whitman’s Yap says some of the common mistakes parents make when saving for their child’s education fund are starting too late, saving without investing and not considering foreign exchange fluctuations for those who aim to send their children overseas.
“It is important to determine what the education costs are in current value and identify a suitable savings and investment vehicle.
“Some parents don’t even have a clue how much education costs,” he says