To assist with your child’s educational future, Jacques Liebenberg, a local financial advisor, suggests applying for an education fund for your children.
“There are a number of education plans available; basically it’s a savings or endowment plan for the specific reason or need of future education funding,” he says.
Most life insurance companies have education plans available and each offer different benefits that can be added to the plan.
“For example, should the premium payer become disabled or pass away, the financial service provider will continue to pay the premium until maturity of the plan and the money will then be paid out to the beneficiary,” he adds.
These plans typically start at R250 per month, so if affordability is a problem, you can approach your bank and open a savings plan for as little as R100 per month where you will then be able to earn some interest.
Once the client has a lump sum of R10 000 you can then invest these funds to achieve a higher interest rate.
Applying for the fund
A client would approach a financial advisor and it is then the adviser’s job to calculate how much money needs to be saved for the child’s education, taking into consideration the effects of inflation.
Next the client and advisor must look at affordability and work out a plan that would best suit the client’s needs and pocket.
“Once this is done the advisor would ascertain where or which investment funds – for example Coronation or BJM funds – would be best suited to the client’s needs,” he explains.
The client then saves on a monthly basis and money is invested into investment funds which aims to provide capital growth ahead of inflation, thus, making your money work harder for you.
“Funds are chosen according to the specific client’s risk profile, time in the market and what risk the client is willing to take and handle.”
Your financial planner will be able to assist you in choosing the correct funds for each client.
Risks
If the wrong type of investment fund is chosen then the client could run the risk of not reaching their investment goal.
That is why it is important to find an experienced financial advisor who is working for an established financial institution such as a bank.
Also, the education plan needs to be reviewed on an annual basis to ensure that the growth is in line with what the client needs it to be.
There are also penalties for early termination of an education plan that is determined by the life company.
It is, therefore, best to save within your financial capabilities and increasing the premium as and when you can afford to do so.
The good thing about investing is that the sooner you start, the sooner you can start taking advantage of compound interest.
Some quick facts
- 40 per cent of South African students drop out of university in their first year, because of financial difficulties.
- University graduates have a 78 per cent greater chance of finding employment.
- In 2012 the average cost of a year at a public school is R20 000, and R80 000 for a private school.
- The average cost of three years at university is expected to be approximately R417 900 in 10 years time.
- On average, only 15 per cent of students finish their degrees in the allocated time, making an education fund that is much more important for parents.
