Saving for the Rising Cost of Education in the Covid-19 Era
By Lloyd Buthelezi, Head of Standard Bank Financial Advisory
The Covid-19 pandemic has radically changed the financial lives of South Africans, making saving for education even more difficult. Uncertainty over job security, market shifts and the length of the pandemic are putting additional pressure on parents who need to send their children to school.
In addition, the cost of education has skyrocketed over the past decade. And although many educational institutions have revised their fee schedules due to new developments such as the forced switch to e-learning, it is likely that they will return to pre-pandemic levels when life resumes. and that the demand for education will return.
Reports have estimated that if your child started Class R in 2017, they can expect to have paid between Rand 1.3 million and Rand 3 million, depending on whether they are attending public or private institutions, at the time. where he obtained a three-year diploma. university in 2033.
Data from Stats SA shows how much these fees have increased in recent times. Primary school fees increased by 7.3% in 2020 against 6.9% in 2019 and those for high schools increased by 7.6% against 6.9%. Meanwhile, fees for higher education institutions rose 4.7% compared to the 6.2% increase in 2019.
This means that each year sending a child to school or university in South Africa will cost much more.
There are also all kinds of fees that parents will have to pay in addition to tuition. Current projections show that tuition, books, accommodation and other expenses – like a computer, smartphone, and access to the cloud and the Internet – are already costing parents between R300,000 and R350,000 per year. year and per child.
Cost of education in South Africa by 2022
Public primary or secondary school: R50,000
Private primary school: R152,000
Private high school: R200,000
Cost of education in South Africa by 2030
Primary or secondary public school: R105,000
Private primary school: R255,000
Private high school: R405,000
However, as a parent, you naturally want to make sure that your child has access to a quality education so that they have the best chance for success later in life. This means that South African households will have to make more room in their budgets to accommodate rising tuition fees.
It may seem overwhelming, especially in today’s economic climate. However, if you start saving as early as possible – even if it’s a small amount each month – you’ll reap the magic of compound interest. This ultimately improves your earnings in the long run.
Whichever savings or investment plan you choose, it is prudent to create a debit order in order to remain a regular and diligent saver over time. Luckily, there are a number of ways to make it easier to save for your children’s education.
Two types of products you may want to consider are:
Inflation-linked unit trusts
Depending on the portfolio you buy in, inflation-linked unit trusts can help you beat inflation because they have inflation-linked goals as performance benchmarks. The unit trust structure and fees are transparent so you can relax knowing there won’t be any nasty surprises down the line.
They also offer flexibility if you need early access to your funds, you can choose to invest a lump sum or monthly amount as you wish and gain exposure to both local and offshore markets.
High fees combined with uncertain future markets may not make it seem like the investment is worth it, but starting to save in the first year, or even sooner, will help you avoid market fluctuations.
Tax-Free Savings Accounts
Parents could also consider a tax-free savings account, which allows annual contributions of up to R33,000 and maximum R500,000 over an individual’s lifetime. All returns on investment earned in the accounts are 100% tax free and the money can be withdrawn at any time.
You can open a tax-free account for your child as soon as he has an identification number. Any money you save in this account technically and legally becomes your child’s money. At the age of 18, they may decide to spend it on a trip abroad rather than using it to fund their higher education – so it’s important to communicate the importance of a good education to your child. from the youngest age.
There are a few provisions regarding a Tax Free Savings Account that must be followed, but if you speak to a financial planner at Standard Bank Financial Consultancy, we will advise you on a financial plan that will keep you within the annual threshold of 33. 000 rand. and the life limit of 500,000 rand.
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