Why your child’s private education should form part of your financial plan
Johannesburg - Private school education is one of the largest expenses for some households and tuition fees as well as boarding fees at the country's private schools can cost as much as R300,000 a year. Considering these fees and the generally high cost of living, families who prefer to send their kids to private schools in the country or abroad should not underestimate the importance of planning well in advance.
"Some families often overlook the fact that school fees are a long-term financial commitment, which can significantly place pressure on household cash flow if not properly planned for. More importantly, school fees increase every year, and the increases are generally above the annual inflation rate," says Yashika Rambujan, KZN Private Banking Regional Head. "For an average household with two kids in school, annual tuition fees, including boarding could easily mount up to R800 000 at top private schools," she adds. Rambujan advises families to think long-term and start making provision for private schooling as early as possible, to ensure that they can sustain the fees.
According to Samukelo Zwane, Growth Head, FNB Wealth & Investments, "There isn't a one-size-fits-all approach when deciding on the best vehicle to save for private schooling, as every family's financial affairs differ. Therefore, it is essential to consult your financial institution or private advisor to help you identify the best investment plan, which considers your family's financial position and aspirations."
Rambujan and Zwane share some investment vehicles to consider when saving for your children's education:
- FNB Horizon Series - has been designed to make it exceptionally simple for customers to choose unit trust funds that best suit their needs. It takes the complexity out of investing and offers investors superior fund solutions, with exposure to inflation-beating returns over different time horizons. The philosophy behind these funds is to target the most optimal asset allocation for a specific time horizon. This means that you get optimal returns for your specified time horizon.
- Emergency fund – An emergency fund should ideally contain enough savings to cover at least three times your monthly expenses. This will assist you to fund your debt obligations if you're unable to earn an income and will help with saving for your child's education.
- Inflation linked deposits - offers you an investment vehicle where your returns are linked to inflation, ensuring your investment keeps up with the rising cost of living.
- Investment property - you have an option to invest in property which is likely to appreciate in value while enabling you to use rental income to fund tuition fees on a monthly basis.
- Equities - investing in the stock market or investment funds that offer consistent growth over the long-term is also an option for parents.
- FNB Multi Managed funds – these are unit trusts that invest in other underlying fund managers. These funds are named to achieve a specified outcome. They have an added advantage of being well diversified across manager expertise, asset classes and sectors.The FNB Multi Manager Equity Fund has received a five-star rating from the prestigious global investment research provider, Morningstar in 2022 due to a demonstrated track record of efficient risk adjusted returns over time.
- Money maximiser account – enables you to have immediate access to your funds, while earning a money market related rate. You can also make additional deposits at any time.
Even if the family does have some cash available, it would be viable to invest it and use the returns to lower the overall cost of private schooling. "Making provision for educational expenses can give families peace of mind knowing that they won't find themselves in a situation where they have to make financial sacrifices in order to give their kids the best education possible", concludes Rambujan.
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