Going to University isn’t the only option available to our children, but it definitely is something we all need to plan for. The reality is that at the end of the day, when your kid, however talented and driven they are, is compared to another student with perhaps equal talent, equal drive and a University degree, most employers will feel inclined to choose the latter. So whether you decide to fund your child’s education or want them to self-fund, this article will cover the bases to making an informed decision.
How much should I save?
In order to work out how much you need to start saving each month, we first must begin by working backwards. In Singapore, since 2010 university fees have seen an increase of about 1.5% each year. That means that with each passing year, there is an increasing trend in university tuition fees. This is something you need to prepare yourself for — how much you need to start saving each and every month.
In Singapore, since 2010, university tuition fees have seen an increase of about 1.5% each year. That means that with each passing year, there is an increasing inflation trend is observed. This is something you need to prepare yourself for — how much you need to start saving each and every month.
Today the average tuition fees in Singapore is about $25,000 (assuming a four-year degree programme as a local student). When you take into account the yearly inflation, in 20 years’ time this value will increase to be $38,000. If sending your child overseas for university studies is an option, you must also be aware that while these tuition fees may not be subjected to an annual inflation, studying overseas comes generally at a higher cost. In the United Kingdom, for example, the average tuition fees range from $35,000-$45,000 for international students. On top of that, additional expenses such as accommodation, living and flight expenses are to be taken into consideration.
After considering these factors, you can work out how much money needs to be set aside each month, depending on your time frame. Remember, the earlier you start saving, the less you’ll have to put aside each month. While your child’s education is important, don’t forget that today’s expenses are just as important as well. Don’t forget to pay your bills or your mortgage, just because you were too consumed by their tuition.
What are my options?
Besides saving, there are many financial products and investments that claim to target saving for your child’s education. However, before you decide on which financial product or investment you’d like to make, do the research and decide if this product will truly meet your needs.
Here are a few examples of financial products and investments that you may consider:
- Endowment Policies
Endowment policies are ordinary premium policies that hold the purpose of saving over a certain period of time. A standard term usually lasts between 10-20 years and is often aimed at saving for a particular objective, such as your child’s university education or as a future wedding gift. In the case of preparing for their university education, make sure to base your endowment policy period on the age at which you would like to start saving.
- Exchange Traded Funds and Unit Trusts
A unit trust and exchange traded funds (ETF) both pool the money of investors so that it may be invested in securities such as stocks and bonds. The key difference between the two is to whom the responsibility of trading of buying shares lies with. In regards to unit trusts, these are usually managed by management companies, and thus, investments are made through them as well. Whereas in an exchange-traded fund, investors may trade their own shares on the market exchanges via a broker, as opposed to buying them from a specific fund management company.Either way, the value of your fund’s investment will depend very heavily on the economic and political factors that surround it, as well as any shifts in exchange rates. Therefore, if you do not understand the product you are investing in, or if you consider yourself to be highly risk averse, then perhaps this kind of investment isn’t for you. But, if you consider this worth a chance, then make sure that because your investment has a fixed end goal, then perhaps choosing a unit trust or ETF that matches the same timeline and objective is best considered.
Bonds are in essence, issued by borrowers in order to raise money from willing investors for a set period of time. When you buy a bond, you are lending money to the issuer. Once the stated period has expired, you will receive the face value of said bond. These are often regarded as safer than buying shares, however, bond holders will still be subject to credit default risk of the issuer. If the issuer’s credit quality falls, then this too may cause the price of your bond to fall as well. Furthermore, because bond prices move in the direction opposite to that of interest rates, if interest rates rise, the price of a bond may fall.
All three of these are examples of investments that you may provide for your child’s future tertiary education, however, remember that other options will always exist. If you are lucky enough and your child excels in either academics, athletics or arts, then perhaps they may be able to apply for some kind of scholarship. Furthermore, you cannot always plan for what course they’ll want to take, nor at which university they will school at. Therefore, be flexible with your estimations, and make sure to be as communicative with your kids!
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