How parents can plan for kids’ studies

Martin de Kock

According to Statistics SA, the rate of education inflation is about 3% above the CPI rate.

To afford tertiary studies, it’s necessary to start saving for your children’s studies as early as possible, so you can use the effect of compounding on your savings/ investment.

The earlier you start, the less you’ll need to save monthly to reach your goal. Starting earlier also provides a longer investment horizon, which in turn gives the investor leeway to invest in more aggressive underlying funds.

Ensure your monthly savings amount increases with inflation each year – you might have to synchronise this increase with your annual salary increase.

There are various factors to consider when saving for tertiary education.

Ownership

You can invest the funds in your own name or in the child’s name. Ownership could affect the tax on the growth of the investment as the growth would be taxed in the owner’s hands. It’s unlikely the child would have a tax problem with the growth on the investment.

However, the risk of investing in the child’s name must be highlighted. The purpose of the investment is for tertiary studies, so when your child reaches 18 they’re no longer a minor and could decide to withdraw and spend these funds as they wish.

Type of product

Unit trusts on an investment platform are generally the cheaper product to use when saving for tertiary studies.

There are, however, many unit trust funds to choose from, so getting advice from an investment professional or accredited certified financial planner will help you to select the correct funds. Exchange-traded funds and passive funds are generally the cheaper option, as the management fees on funds are normally low.

Tax-free savings accounts

Although this is an option, current legislation permits a maximum annual contribution of R33 000 per taxpayer. This limit might be a problem if you need to save more annually to reach your savings goals. The benefit is that the growth and returns are taxfree.

Education policy/ savings plan

Are prohibited during the early years of the policy – so if you have a problem with financial discipline, this may work for you.

Whichever product you select, remember to monitor or measure the growth of the investment every year.

Martin de Kock is with Ascor Independent Wealth Managers.

Freelancers, contract workers, sole proprietors and small business owners have no reason to believe they’ll never own a property. Being organised and having your affairs in order is the first step and already gives you a great advantage.

Paper trail

A number of documents must be submitted with your home loan application; ensure they’re accurate, up to date and in order:

A letter from your accountant confirming your personal monthly income;

Financials covering your income and expenditure over the last two years of working or trading; A 12-month cash-flow forecast; A list of assets and liabilities; Personal and business bank statements for at least six months;

Your latest IT34 (serves as Sars