Start now saving for education

Errol Meyer

The startling cost of education is driving more parents to start saving earlier for their children’s education. Yet, few realise just how expensive it can be to educate a child.

Liberty Group has found that the approximate total cost of education for a newborn child is estimated at about R2 million for private schooling and R701 000 for public schooling.

The above excludes extra costs like uniform, textbooks, stationery, transport, extramurals, and accommodation.

In the education sector prices are somewhat inelastic, meaning demand is less affected by a rise in price as parents will sacrifice to ensure their children get good schooling. As such, to give your child the best educational chance, start saving as soon as possible.

The earlier you start the better, especially since education inflation tends to outstrip consumer inflation by 2% to 4%. Furthermore, most parents will have more than one child.

An ideal way to save for your child’s education is a tax-free investment vehicle, which allows you to put away up to R33 000 a year that you can cash out at the end of your particular time horizon without incurring any tax.

Rather than chasing high returns, define how much you will need over the investment horizon and then invest in a product that offers a return profile that will achieve that defined goal. If you can reach your goal with an inflation-plus-5% strategy, then rather go with that than expose your child’s future to greater risk by chasing a more aggressive return profile.

Another piece of advice is to save in the currency in which you intend paying fees. If you’re planning to send your child to university in the UK, then look for a British investment product denominated in pounds.

Different countries have different economic growth and interest rates, inflation, and political regimes which can all affect their currencies. The rand is also a notoriously volatile currency so it’s risky to save in rands if you intend educating your child abroad, as there is a good chance that the rand could move against you.

Errol Meyer is legal specialist at Standard Bank Financial Consultancy