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Mommy, I want to go England…

Recently, I was taken aback with a remark from my 5-year old boy.

“Mommy, thank you for not sending me to ABC anymore (ABC refers to a Chinese language enrichment class which he enjoys going very much).

“Now I have forgotten everything and do not want to go there anymore.”

I was hurt with his remarks. He seemed unhappy that I had not sent him for his favorite class. Though my reason was valid this round, as it was due to the recent pandemic, which then made me rationalize that I should not keep him out too much.

But what if my reason was ‘I have not planned and saved enough for his education?’.

As a parent, we always want the best for our children. And this could mean providing them with a sound education to give them a promising future. And this means, we need to plan well ahead.

The big question is, when your child is ready for his tertiary education, are you ready?

Let’s follow through these 4 steps as a guide in your journey to plan for your children’s education success.

Step 1 - Plan early

As a parent, you have to pay a huge amount to provide for your children’s education. Furthermore, tertiary education costs are rising consistently every year. With only so many education loans or scholarships to go around, you will likely have to contribute the biggest part to your children’s education fund.

It’s never too early to start saving for your children’s education fund. When you give yourself a head start, your money will have more time to grow, and more time to weather the economic environment’s ups and downs.

Step 2 – Determine how much you need

The following are some questions you need to ask when calculating your children’s education costs.

  • The number of years before your child attends university?

  • Do you plan to send your child to a local or an overseas university?

  • What is the estimate length of the course in the university that you wish to prepare for?

  • What is the currency exchange rate of the country you wish to send your child to?

Tuition fees and living costs vary from country to country. The table below shows the estimated average annual tuition fees and living cost for international students in selected countries:

A university degree typically takes between three to four years of full-time study to complete. Medical- related degrees like medicine and dental may take a longer time – at least five years to complete. What about post graduate degree?

You will also need to take into consideration the effects of inflation on your future expenditures. Assuming an inflation rate of 4%, a 3-year course at Monash University in Australia that currently costs RM320,000 will cost RM576,000 after 15 years.

Step 3 – Determine how much to save

If your child is 3 years old this year, you have about 15 years to prepare an education fund before your child starts university at the age of 19. You may then start to plan how much should you save monthly to achieve your desired amount in 15 years.

For example, if the amount is RM500,000, you would then need to save, RM1,445 every month from now onwards for the next 15 years. (based on growth assumption of 8% per annum)

The below table illustrates the monthly savings required to achieve your desired education cost amount.

Step 4 – Take action today

With the rising cost of education, it is important to know which method of wealth accumulation suits your goal best.

Apart from traditional savings and fixed deposit account, there are various investment instruments to save for your child’s education fund. You may choose from investing in property, stock market and unit trust. If you are looking for tax incentives, you may consider education insurance plans and the National Education Savings Scheme (SSPN) which provides tax relief of up to RM3,000 and RM8,000 per year, respectively. Practise Ringgit-cost averaging and continue to invest regularly every month.

Begin as early as possible to take advantage of compounding interest to achieve the required sum. Talk to a financial advisor to help you design a plan. You will be surprised how much it can help ease your worries. And when your children are all grown up, they will be totally grateful for all the thoughtful preparations you have put into planning for their future.

“An investment in knowledge pays the best interest” by Benjamin Franklin

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