Anine Theron, Associate Director and Trust officer in our Somerset West Office, discusses the high cost of educating children and the importance of an early savings plan.
Statistics show that the cost of education is on the rise and many South African parents do not know what they can expect to pay for their children’s education in the years to come. Educating our children is certainly a priority for most parents in South Africa, but it is also a huge source of financial strain and stress. Relying only on your salary to finance your children’s education is becoming increasingly difficult, if not impossible. The problem is that the cost of education grows at a higher rate than the average salary (and inflation in general). Over time, the fact that costs grow at a faster pace than your salary, effectively means that more and more of your salary will have to be set aside for your children’s education. From month to month we absorb the cost, tweaking our budgets to accommodate the ever-increasing expense until it catches up with us. It is therefore advisable to rather start saving as early as possible for children’s education as it will relieve the future financial pressure of covering rising education costs. It is not just parents who should do this; grandparents that are able to, can consider putting a monthly saving away to help pay for their grandchildren’s education.
I have two children at school now – Evert is in Grade 6 and Christi is in Grade 3. Getting children accepted into schools nowadays is highly stressful for most parents. You have to live within certain catchment areas, your children have to fit into a set of strict criteria and you often have to weigh up what you want for your children against practical considerations. That’s just the beginning, and soon it gives way to something that is far more stressful in the long run: paying for all of the costs involved in educating your children! I suspect that I am not alone in initially feeling rather overwhelmed at the thought of having to finance my children’s education. We all want to empower our children by giving them the best possible education and a debt-free start in life, but we often get stuck when it comes to saving for their education and estimating how much it will all cost.
According to Statistics South Africa, the cost of school fees has been increasing by close to 9% per year over the long term, relative to the rate of inflation that has averaged 6%. The most recent survey, conducted in March this year, showed that education costs increased by 4.1% in 2021; this against a rise in costs of 6.4% in 2020. It seems that due to concerns around the impact that higher costs would have on families during the Covid-19 pandemic, many schools implemented marginal increases in 2021. It is however safe to assume that education inflation will revert to its long-term average in future.
So, what is the cost of education these days and what is the total sum you can expect to pay out for a child’s education? It is probably more than you think it is. The following table reflects the current average education cost, according to Old Mutual. Also included in the table is what the average cost of education is projected to be 15 years from now.
|Average cost per one year of education||2021||2037|
|Public primary/high school||R44,000||R150,800|
|Private high school||R173,000||R592.700|
It is therefore likely that the total cost of education for a child can range from R1.5m – R3.5m in today’s terms, depending on whether one opts for public or private schooling. This estimation includes primary school, high school and a three year tertiary qualification. These figures will increase considerably if a child decides to pursue a lengthy degree or postgraduate qualification. Also, not included in the aforementioned estimate is the cost of extra-curriculars, school uniforms, accommodation, transport etc.
These costs can be daunting and therefore it is essential to not delay, but to start saving sooner rather than later so that you have time to benefit from the magic of compounding. What should one be saving? There is no universal number and the answer will depend on your objectives and personal circumstances. We are generally better off by saving a little every month than not saving at all! One should save all you can today to ease financial pressure in the future and to ensure children have the best possible education which will provide them with better options for their future.
There are many viable options for saving for future education expenses but investing directly into a unit trust fund gives you full control of the investment with lower fees than other education savings options that are available in the market. The fact is, you have to start saving for your children’s future the day they are born. We are not all that organised though and many of us find ourselves facing the hard reality of increasing school fees. Even then, it is never too late to start saving for the future.
I started off this article by saying that grandparents could be putting something away each month to help pay for education costs. Why do I include grandparents? Helping to pay for a grandchild’s education can bring great personal satisfaction and is a smart way for grandparents to transfer wealth. If you feel that you would like to contribute towards your grandchildren’s education, why not help by starting a monthly saving to a unit trust fund that can one day be redeemed towards funding education? Consider investing in a well-balanced, diversified portfolio of assets and encourage saving with your family.