Balancing the Books

Planning for your child’s education Funding the cost of school fees can be one of the biggest financial commitments an expatriate family makes. Here, the team at St. James’s Place Wealth Management explains some of the ways to plan and prepare for these

START EARLY

The key to affording school fees is to plan and prepare as early as you can. Generally, parents fund school fees in one of two ways: they invest a lump sum, or they set up a regular savings scheme, which spreads the cost. Fees at international schools in Singapore differ – for example, the estimated lump sum required to fund one child at Tanglin Trust School from kindergarten through to age 18 is $725,000*. For those who prefer to set aside a regular amount each month, the process of “compounding” means that any income or capital gains generated by your original savings will in turn generate income or capital gains itself. This principle can have a significant impact on the regular amount required to achieve a fixed sum. For example, assuming a net investment growth rate of 7 percent per annum, if you wanted to accrue $1 million by 2026 you would need to save just over $5,745 each month. If you waited for five years, however, you would then need to save nearly $13,890 each month to accrue the same amount.

The golden advice is this: the earlier you start saving, the better. The amount you get back will depend on how your investment grows and on the tax treatment of the investment selected.

MUTUAL BENEFITS

If your parents are resident in the UK, trust planning can also be a useful tool if they wish to make provision for your children’s school fees and achieve Inheritance Tax (IHT) mitigation at the same time. If they make regular payments from their income without impacting their lifestyle, then these gifts may not count as part of their estate for IHT purposes.

Another option is to gift a lump sum for their grandchildren’s education. Provided they survive for a further seven years, the gift is free of IHT.

RISING SCHOOL FEES

Demand for places at international schools is growing rapidly, fuelled by expatriate families wanting to ensure their children benefit from continuity of education. As a result, competition between schools for the best teachers and leaders is high and this has a knock-on effect for school fees. Premium international schools charge high fees because they have to offer better salaries and benefits packages to recruit and retain the best teachers.

KNOW THIS

As the cost of school fees looks set to rise, it is sensible to ensure that your income and investments are working as hard as possible for you. If that ultimately benefits the children in your life, and gives them access to the best educational opportunities available, then you’re also offering them the best possible start.