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Henrie's Recipes
Future shock : the cost of education
Iona Minton
Posted Mon, 23 Jul 2001
If we based our decision to have a child purely on affordability, my guess is that the world would have far fewer inhabitants. As delightful as they are, these little beings cost us a small fortune as we nurture them towards adulthood. When you take into account the cost of childcare, groceries, clothing, gift giving, a bigger home, recreation, additional insurance and healthcare, you could find yourself looking for an additional R24 000 per year in your budget. These costs, however, fade into oblivion when you consider education.
The reduction of government subsidies has increasingly put pressure on schools and in turn the parents paying the school fees. Saving for your children’s education is now in the same league as saving for a new car or home.
Ideally you should be putting money aside even before your children are born. When you decide to have a child, you should sit down and estimate how much it will cost you to raise the child over the next 15 years.
A head start on savings can make a big difference. For example if you put aside R300 per month at an average growth of 10% for two years before you plan to have a child, and continue to save until they are five, you will have saved R36 200 by the time they are ready to start school.
Saving for your child’s education is a long-term commitment. The cost of educating a child increases as they get older; your yearly savings should therefore also increase by at least the rate of inflation.
What it will cost:
Age 0-5
If you place a child in a nursery school from 18 months of age, you can expect to pay an average of R800 per month or R9 600 per annum. Assuming increases of 10% pa you will need the following. (For one year of education)
Year 1: R9 600; Year 2: R10 056; Year 3: R11 061. So for three years of nursery school education, you will need R30 717.60. In 10 years from now, one year of nursery schooling will cost R25 980.
Age 5 to 17
Model C Schools
currently charge between R500 and R800 per month. Taking an average of R650 you will need to save. Year one: R7 800
Year 2: R8 500
Year 3: R9 350
For three years of primary schooling you will need R25 650
For 12 years of schooling from grade one to twelve you will spend a staggering R179 684.
It does not stop here; you will also have to factor in school uniforms, books, school trips and extra murals. It is not unreasonable to expect to pay R250 000 at the end of the day.
Now, how do you get your hands on that kind of cash? There are various savings options available to you. The best-known option is an Insurance Company education policy. The investment is usually in the form of an endowment, with a choice of maturity dates. An endowment is a forced contractual savings plan. Although they ensure that you do put money aside each month the growth of theses policies have been very low in the last 10 years, with many of them not even keeping up with inflation.
In the past, education endowments were taken out over 15 years to fund the cost of a university degree, but as you can see, the cost of primary education is sky-rocketing, so you have to start saving much earlier.
A much better way to save is to invest in unit trusts, they generally perform above inflation and the upfront costs are low. The money is easily accessible (you get your money in 48 hours) and you can sell units as expenses occur. As with all effective investment strategies, a long-term approach should be adopted when investing in unit trusts i.e. a minimum of three to five years.
Most people will have to engineer a dual savings plan, one to cover the year-to-year fees and one to cover future costs. The only way to comfortably afford the fees if you have not started saving is to ensure that you have no debt. An average income earner will have to carefully allocate resources and paying interest instead of earning it will keep you from achieving your objectives.
Here are some tips to keep those bills under control.
The bottom line is that the cost of education is a large expense that has to be taken seriously. However, with a little planning, you will be able to afford the education you want for your child.
