Ronald King | Considering a university education for your child

In a world where more young people are unemployed than employed, it has never been more important to ensure our children’s future. Ultimately, you want to empower them to rise above their competitors in the race for the limited jobs that are on offer.

How much does it cost, and how much do you need to save for your child’s tertiary education?

The total costs of a four-year degree at either the University of Pretoria or Stellenbosch University are currently in the vicinity of R1 000 000. This includes tuition, housing, food, books and personal expenses. The fees quoted by Harvard University and MIT are about US$330 000 for a four-year degree. In rands that equates to R6 000 000 at present.

If you start saving at the birth of your child, you have 22 years for the investment to grow. By the time your child is ready to go to university, you will most likely easily get student funding at a very low interest rate if you provide this investment as security. The investment itself will be able to continue growing at a higher rate for the four years your child will be studying. When your child is 22, the total debt would be R3 600 000 based on inflation of 6% p.a. until then.

Contributions required to reach your target

The investment has an initial term of 22 years to run, you can invest in an aggressive portfolio that should provide you with 13% growth per year. If you increase the contribution by the annual inflation rate, you will need to save R1 700 per month from the birth of your child. If you decide on a moderate risk portfolio with an 11% return, the monthly premium required increases to R2 150 per month. However, it is not only the risk profile of the portfolio that impacts the amount of savings you require. The term has an even bigger impact.

If it is your intention to provide for overseas studies, you will have to multiply the amount required to be saved by six. To prevent currency fluctuations from having an impact on your savings plan, a savings plan for foreign studies should preferably be in the currency of the country where your child would want to go and study.

For many these amounts may seem out of reach, with the result that they do not even try. However, even the smallest start will have an impact on what will be available. Even if only the tuition (about a third of the total cost) is covered, you would have made significant progress in securing a better future for your child.

Individuals’ tax rates differ and therefore we did not include any assumptions regarding tax in our calculations. Keep in mind that, depending on the product you choose, tax may be levied on the income as well as the profit from your investment.