Prioritise saving for your retirement over saving for education
Many parents are so financially hard-pressed they can’t afford to save for their children’s tertiary education. If this is you, don’t be tempted to sacrifice saving for your retirement in favour of saving for your children’s education.
According to figures released by Old Mutual recently, if your child started Grade R this year, their primary and secondary education and a three-year degree will set you set you back about R1.3 million if you go the public school route, or roughly R3 million if you send your child to a private school. These figures are based on the fees charged by selected former model C government and private schools and universities, increasing at a flat rate of 9.5 percent annually, which is the expected education inflation rate this year.
According to Old Mutual’s Savings and Investment Monitor for 2016, more than half (54 percent) of urban South African parents are not saving for their children’s education.
Old Mutual says respondents provided a number of reasons for not saving, ranging from a lack of awareness about education savings vehicles to a resistance to the restrictions these vehicles place on withdrawals before the investment matures.
Your inability to save for your children’s education should not stress you out too much, because the cost of educating your children will remain more or less constant from daycare to university – and most people fund these costs from their salaries, Sue Torr, the managing director of Crue Invest in Cape Town, says.
Torr explains: “The daycare that we sent our sons to charges R4 700 a month this year, which is R56 400 for the year. Comparatively, our oldest son’s first year at the University of Cape Town will cost us R56 000 this year.
“A year at SACS high school will cost R44 000 this year for tuition alone. With uniforms, tours and extra-murals, a year at SACS will cost the same as crèche and university. The point is that the cost of educating your children will remain constant from the time they go to a crèche until the day they complete their tertiary education.”
This should give you some comfort if you have a tight budget and can’t afford to save for university fees: by the time you child gets to university, it won’t cost you much more than you are used to paying in school fees.
It goes without saying that it’s preferable to save for school and tertiary fees, but if you haven’t, or you can’t afford to, you shouldn’t panic, and you definitely should not forsake saving for retirement in favour of saving for your children’s education, Crue says.
“We believe emphatically in prioritising one’s own retirement funding, for a number of sound reasons. First, providing a child with a tertiary education is absolutely no guarantee that the child will be successful or will earn enough money to support you in your old age. You simply cannot place the burden of your retirement years on your children.”
Second, there is nothing wrong with making your children contribute in some way towards their tertiary education, she says. Whether they assist in the form of a student loan, scholarship, internship or part-time work, it is not an unreasonable expectation. Involve them in the conversation as soon as they are old enough, and make them aware of the need for their help when the time comes, Crue says.
Third, it is more prudent to ensure that you are in a stable financial position by the time your child reaches university age, so you are in a position to stand surety for any potential student loans. It is easier for children to borrow for their education than for you to borrow for your retirement, Crue says.