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The stu­dent protests over the past few months have high­lighted the high cost of ter­tiary ed­u­ca­tion. For many, the cost of reg­is­tra­tion alone is enough to shut the door of op­por­tu­nity. The SA In­sti­tute of Race Re­la­tions has re­ported that only 5% of South African fam­i­lies can af­ford to send their chil­dren to uni­ver­sity. While the gov­ern­ment may or may not de­cide to make higher ed­u­ca­tion free, par­ents of young chil­dren, like my­self, need to start think­ing ahead to avoid be­ing part of the other 95%.

The first thing ev­ery par­ent needs to con­sider be­fore shop­ping around for a suit­able prod­uct is their fi­nan­cial po­si­tion and what type of ed­u­ca­tion they want for their child. How much can you set aside monthly, or do you want to make a one-off lump sum in­vest­ment? Are you look­ing to send your child to a pub­lic or pri­vate school? What about ex­tracur­ric­u­lar classes and ac­tiv­i­ties? Will you also want to save for uni­ver­sity, and what fig­ure should you be look­ing at?

The in­vest­ment time frame is also im­por­tant – the in­vest­ment con­sid­er­a­tions for a new­born baby will be dif­fer­ent to those for a 10-year-old.

When it comes to in­vest­ments, you should look for an in­vest­ment that, at the very least, of­fers re­turns that beat in­fla­tion and is low on costs (man­age­ment, per­for­mance and other in­vest­men­tre­lated fees that might be im­posed).

Some par­ents might want flex­i­bil­ity in terms of ac­ces­si­bil­ity to funds. You’ll also want to pay as lit­tle tax as pos­si­ble. All these con­sid­er­a­tions will have to be taken into ac­count be­fore you take the plunge.

When I started sav­ing for my son’s ed­u­ca­tion, my fi­nan­cial sit­u­a­tion was less than ideal. I pan­icked that I’d started too late and that I wasn’t sav­ing enough. I shopped around and even­tu­ally set­tled on ex­change-traded funds (ETFs), opt­ing to avoid a tra­di­tional ed­u­ca­tion pol­icy.

My rea­son­ing be­hind choos­ing ETFs was mainly based on the lower cost, but I still had time to al­low my in­vest­ment to grow and ride out mar­ket dips so I didn’t need any in­vest­ment guar­an­tees.

Re­cently, a friend of mine sug­gested that I rather look at an ed­u­ca­tion en­dow­ment pol­icy, which might work bet­ter in terms of re­turns and the tax ben­e­fits. I de­cided to dig a lit­tle and I re­alised that, due to my tax bracket, an en­dow­ment pol­icy would end up be­ing a big cost for me and there would be no ben­e­fit when it came to tax.

En­dow­ment poli­cies have a tax rate of 30%, so the only peo­ple who would ben­e­fit in terms of tax are those in the tax bracket above 30%. They’re also not liq­uid in­vest­ments and cap­i­tal is not ac­ces­si­ble for five years, al­though some poli­cies do al­low pol­i­cy­hold­ers to with­draw par­tial funds.

A lot of peo­ple might opt to go for an en­dow­ment be­cause ac­cess to funds is lim­ited, thus mak­ing it dif­fi­cult to with­draw funds un­nec­es­sar­ily. There are penal­ties that ap­ply to an early with­drawal of funds – that is, with­drawals be­fore the end of the five-year pe­riod. The penalty rate, usu­ally set at about 15%, de­creases the closer you get to the end of the five-year pe­riod.

Some en­dow­ment poli­cies give mem­bers an op­tion of mak­ing a lump sum in­vest­ment or in­vest­ing monthly. There are also sev­eral as­set classes avail­able to in­vest in, with dif­fer­ent risk pro­files taken into con­sid­er­a­tion. The same can be said for ETFs and unit trusts, ex­cept that the min­i­mum monthly con­tri­bu­tions can be lower for an ed­u­ca­tion pol­icy. Most ETFs or unit trusts re­quire a monthly in­vest­ment of R300 or more.

Those look­ing at en­dow­ment poli­cies need to pay at­ten­tion to ini­tial costs, monthly costs and an­nual costs. Some costs may in­clude an ad­viser’s com­mis­sion, per­for­mance and ad­min fees, and as­set man­age­ment. Some com­pa­nies charge these fees col­lec­tively as re­duc­tion in yield, and this is worked into your port­fo­lio. The ben­e­fit of an en­dow­ment is that the

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