WILL YOU AFFORD SCHOOL FEES IN 2030?

IT’S A NEW school year and excited, possibly nervous Grade 1s are settling into the start of their education journey. As a parent, do you feel prepared for the financial obligations the next 12 years will present?

The official statistics for the past five years show that education inflation runs at about double current inflation rates. This means that if inflation is 4.5 percent, education inflations is 9 percent.

Using a government school’s current annual fees as an example, Grade 1 in 2019 costs R32 890 and Grade 12 costs R41 200. Using 9.3 percent as the inflation rate, for the remaining 11 years of school, parents with a child in Grade 1 this year can expect to pay R109 576 for their Grade 12 school year in 2030.

In 11 years’ time the fees would go up by more than double the current rate, or 2.65 times. And if you compare that to Grade 1 rates, it would in essence be 3.33 times the current rate.

With this in mind, it’s imperative to start planning for your child’s future sooner rather than later.

The current economic climate is prompting many families to look at alternate ways to secure their children’s futures. Rather than a high-risk investment, many people are favouring more stable investment options such as insurance policies, special savings products, unit trusts and other long-term investments that have historically yielded good returns.

The best way in which to save for your child’s future is to invest funds in a fixed-deposit investment. These deposits can be quite flexible, allowing you to add money periodically. The interest rate is higher than if you set some cash aside in a basic savings account. As your money grows, you will enjoy the benefit of compound interest and your money will increase.

Fixed deposits work by holding a certain amount of money for you for a specific period (you can choose a period between three and 60 months). However, the money cannot be touched until the selected period has elapsed.

Another investment worth looking at is a tax-free savings account (TFSA). A TFSA allows you to get your full investment return, up to R33 000 a year, or R500 000 over your lifetime, without being taxed on any of the growth you have earned.

At African Bank, for example, investors will enjoy guaranteed returns and it is hassle-free, fee-free and you are free to make deposits any time into the account. Instead of the traditional 7-, 32- and 90-day notice, the TFSA has a one-day notice period, but can be accessed only every year during the anniversary month of the account being opened. In addition, you can build your savings by making as many deposits as you like, to a maximum of R33 000 a year, and there is no limit to the term of your TFSA. The minimum opening balance is R500.

Once you have decided on a preferred savings plan, it is worth shopping around before you invest your money. It is a good idea to choose a bank that you trust and that has a great reputation with regard to interest rates and fixed deposits in general. Ultimately, saving for your child’s future is a straight-forward process as long as you keep your investment consistent.

Mellony Ramalho is African Bank’s group executive for sales and branch network.