For one week parents throughout South Africa are going to give a cry of despair......"WHY ME?"
It's the week parents get the bill for next year's school fees. Most sensible parents realise that quality education is expensive. Sadly the costs are often more than most monthly budgets can handle.
There are two ways to pay for children's education.
- Win the Lotto
- Con a doting grandparent into sharing responsibility for school fees.
Those who require a more sophisticated approach to education planning could:
- Design an investment plan using Unit Trusts (Collective Investments). The advantages of unit trusts are the flexibility of premiums and transparent costs.
- Buy an Educational Plans from an insurance company. The advantages are that you could add premium waivers in the event of retrenchment or death of the premium payer.
However, you MUST consider the ongoing costs of any savings plan. The higher the cost, the lower the return is likely to be. Some plans could chew up more than half your first year's premiums.
Know the approximate amount you will require before you embark on an educational plan. Too many parents buy plans based on an amount say R200 pm or R300 pm and then get a shock when they realise the proceeds will only cover train fare, two books and sandwiches for a term.
Deciding on a plan is a seven-step approach:
- When will you need the money?
- Which university or high school will your child attend?
- What are the fees this year?
- What do you think is a reasonable education inflation rate?
- What will the future value of the costs be?
- What do you have to invest to accumulate this amount?
- Can you afford the premium, if not, what do you intend to do about the shortfall?
At Northwood, we encourage Collective Investment plans. Premiums are flexible; you don't lose if you surrender early. You should check your plan every year to ensure that the proceeds remain sufficient for the course you have in mind.
NEVER buy an educational plan from a magazine. One size does NOT fit all.
