Savings tips for parents – make provision for your children’s future

Written by Ansja Ferreira

Parents are often caught up in their day-to-day existence and the struggle to keep the pot boiling. Mom is under pressure with diapers and bottles, sick children, taking children to school and extracurricular activities and Dad is trying to build a career and to fulfill all his responsibilities. In our modern life few of us also have time to focus on planning for future education costs of our children.

Children are often asked what they want to become when they are grown-up – a doctor, teacher or pilot. As a parent, you don’t want something like finances to stand in their way.

It is every parent’s dream to ensure the best possible future for their children. For every dream there is the glaring reality of our everyday existence. One of the main contributing factors for after school students who had to leave their studies, is a shortage of finance.

To plan for your child’s education is one of the most valuable gifts you can ever give him or her. This may be one of the best assets you can ever give your child.

Kaylin and Wian, two working adults in their thirties, have two children, aged 6 and 3 years old. They have made no provision for their children’s future studies. How do they get started?

Do a calculation of expected costs

Your first step is to do a calculation of what tertiary education will cost more or less. For this calculation, you must take the type college or university, the time you have at your disposal to save and inflation, into account.

According to the University of the Free State, a B.Com Financial Management course will cost you about R 19 039 per year. This does not include books, stationery, transport, accommodation or food. If your child is 3 years old now and you have only started saving for his or her studies, you will have 15 years left to save and you can expect to pay in the area of R 336,345.32 for a four-year course when he or she is 18 years old. Inflation and increasing tuition fees were introduced in this calculation. When accommodation and books are included, an estimated R 971,636.79 will be paid.

Remember, this is the estimated cost for only one child that you send to university. These projections highlight the importance for parents to save early for their children’s studies. Parents with more than one child will obviously have to save more. The more children they have, the more they will need to save.

Even parents who do not want to send their children to university, but instead to a Technikon or training college, can still expect to put their hands deep in their pockets. Parents should also remember that their children’s schooling can also take a big bite out of their budgets. School fees, outings, school uniforms, stationery and expenses for extracurricular activities all play a role in school education. Children can go to school from kindergarten and pre-primary school. When all the costs are added up, you will have paid a substantial amount by the time that the child finish high school. The costs for private schools will obviously be more expensive than the cost of state schools.

Although it is important to realize that after school study costs will be more expensive, one should not fear these costs. With careful planning, there are ways to save for your child’s education. It is important to start early. Start as early as you can, even if you start with your child’s birth.

Your options

Mr. Connie Bruwer, from PC Bruwer and Partners, gives the following tips for parents who want to provide for their children’s future financial security.

Investing a fixed amount in unit trusts every month. Budget for a monthly investment, do not cancel it and increase the amount whenever you can. You get the advantage of a disciplined investment program and invest regularly without having to guess when the market is at a high or low. Choose funds that suit your time-frame and objective. Unit trusts are a more flexible way to save for your child’s future. You can also pay a lump sum when extra money is at your disposal, for example when you get your annual bonus.

Unit Trusts does not include life and disability insurance. If you pass away or become incapable of earning an income, the amount you wanted to save for your child’s studies will not be available. To avoid this problem, you must provide for adequate life and disability insurance. Ask your financial adviser to give you an overview of the different unit trusts that are available. Choose one for your particular situation that will work best.

Study plans from insurance companies which can also be linked to life insurance, is another option. Contact your nearest insurance company for more details.

Money can also be saved monthly in a an ordinary savings account, but the risk involved is that you might be tempted to withdraw when money is urgently needed. Money can also be saved in a fixed deposit account, where the interest rate is much higher than a regular savings account. Bank savings products usually pay high interest rates and the growth of your investment may be lower than with the other options that are available. A bank savings product is simple and easy to understand and you run no risk. Even if one cannot get the full amount needed to save for studies, a person can save enough to pay a deposit on a bank loan and thus receive easier approval for obtaining a bank loan. If your child decides not to study, he or she can use this money to start a business.

Different banks and institutions also offer various products that can be used to save for your child’s future. Make sure you choose a product that offer relatively high interest rates and does not charge monthly administration fees.

A lump sum can also be invested in money market fund or other plan, which can ensure also a good return. Returns are reinvested and the amount remains invested for a long term until the child wants to start studying.

Start early

Start before your child’s birth or soon thereafter and plan for your child’s future. Time is on your side. Invest now and watch your investment grow as your child grows up.

Try to determine the exact amount you will need in the future. It’s better to get the bad news now. The high costs might even shock you into doing something about it.

Make a point of saving for school and post-school education as part of your monthly budget. Ensure that you work out your budget carefully and make sure you can afford your monthly expenses. If you do not work out your budget, you can later be forced to go into debt to afford all your expenses, which later could degenerate into a vicious circle of debt. Your savings plan should form part of your larger financial plan and it must be flexible and adaptable. Your child might decide not to study at university at all and to rather go abroad. You have to be prepared for more than one option.

Encourage investments as gifts. Grandpa can perhaps invest a fixed amount on unit trusts for the little one. The investment can later be supplemented as fees are available. Savings can be a family affair. Make your children part of the process. Inform them about the process and the sacrifices necessary to provide for their future studies. Let them see the results from time to time. Teach your children from an early age how to work with money and to save money. Give your smaller children a piggy bank to save money in and teach your older children to save part of their pocket money. Encourage your children to participate in entrepreneurs days and other events where they can earn money. Teach your child the value of money from an early age.

Adapt your will

What happens when parents die before their children reach the age when they can study? People with young children especially want to know what the best solution is and how they will be prepared to protect their young children’s inheritance. The best solution for parents with minor children is to establish a testamentary trust for their children – the children are the beneficiaries and the trustees is there to protect the interests of the children. The trustee is the person who will act in the interests of your children and manage the financial affairs of the trust. You need to think carefully when you appoint a trustee for the trust. It is not necessarily the best for the same person to be the children’s guardian. The trustee should be someone who has the necessary financial knowledge and background, to manage your children’s financial affairs to their advantage. The trust funds can then be withdrawn, which can be used as needed for study purposes. It is important to specify it in advance in your will, that provision should be made for studies. The assets and cash in the trust can be realized when your children reach the age of 21 or at an age chosen by the testator or testatrix, which should not be less than 21 years.

What can you do if you discover that you have not saved enough to cover all the study costs. There may be family members who can help you and you can also apply for scholarships, loans and other programs.