Back-to-school blues

2014-01-13 08:01

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If you have a good savings strategy in place, you can provide an education for your child without ruining yourself financially. Maya Fisher-French and Neesa Moodley-Isaacs report

Miriam Isaacs of Durban is a widowed, unemployed mother of two boys in grades 1 and 3 this year. She barely manages to make ends meet on the pension payout she receives from her husband’s former employer.

“It’s really tough right now. With both the boys in school, I will have to pay combined school fees of R2?000 a month.

“My second son Joshua will be using all his brother’s old uniforms and I’ve even bought reusable plastic book covers in the hope that I won’t have to buy new ones every year.

“We’ve been able to manage up to now, but I’m job hunting in earnest,” she says.

Ideally, you should start saving for your children’s education the day they are born or as soon as you find out you are pregnant.

If you are not superstitious, you could even start saving as soon as you get married.

But even if you didn’t start saving ahead of time, it’s never too late to start.

Sally Juckes of audit, tax and business advisory company BDO says government school audits have shown increases in school-fee remissions?–where parents receive full or partial exemptions from paying school fees for reasons of affordability.

“In certain instances, remissions are up to 50%?–?but this is exceptional as most are between the 25%-35% mark, thus significantly affecting a school’s income from fees.”

Juckes says below-inflation salary increases over the past two years and the rising cost of living have led to an increasing number of parents with children at government schools struggling to pay school fees.

On the other hand, private schools largely escape these difficulties because they employ professional debt collectors and are quick to hand over accounts in arrears.

But parents at private schools are not finding things much easier.

Lynette Hundermark also has two children in grades 1 and 3, but they attend a private school in Cape Town.

“There is a sibling discount of 5% plus R2?000 and an early bird discount of 7% on school fees, but that only applies if you have the funds to pay the entire year’s fees upfront.

“I prefer to pay fees via a monthly debit order,” she says.

Hundermark’s children are in a Montessori 6-9 class and their annual fees this year will cost her R35?681 each or a monthly debit order of R6?488. That excludes extramural activities like drama and karate, and uniforms and stationery.

“The cost of uniforms is atrocious. Everything is custom-made. I try to spread the cost of uniforms and only buy winter uniforms later in the year,” she says.

At the end of the day, something’s got to give and it usually happens in two areas: first, parents sacrifice retirement savings and second, they take on increasing debt.

By having a strategy in place, you can find a way to provide an education for your child without ruining yourself financially.

Watch the debt: Many parents complain about the cost of education yet drive luxury vehicles that cost them at least R5?000 a month.

Your child’s education is far more valuable than a car and unlike a car, education doesn’t depreciate. When you buy a house or car or take on any debt, make sure you are not doing so at the cost of your child’s education.

Grow your savings: Use the Save More Tomorrow plan to boost education savings.

In their book Nudge, authors Richard Thaler and Cass Sunstein recommend using some of your salary increases each year to boost your savings.

For example, if you receive a 7% salary increase this year, sign a debit order immediately to put 2% of your additional income into a savings account. If your 7% increase puts R700 extra into your bank account, put R200 of that into savings.

Every year, commit to increasing that debit order by another 2% of your salary. Within five years, you will be saving 10% of your salary without cutting back on your spending.

Another way to achieve this is to commit to saving an amount that increases by a few percent ahead of inflation each year, for example, an escalation of 9% to 10% on your monthly savings plan.

Set realistic goals: It is very difficult to save enough to pay for your child’s secondary or tertiary education in full. Rather target the growing gap between your salary increases and the increase in school fees.

In other words, have savings to supplement your school fees.

You also need to save for the jump in school fees when your child moves into high school as the difference in fees between primary and high school can be as much as 20%.

Even primary school fees increase with each grade, over and above the normal annual fee increases. For example, a Grade 5 learner’s school fees will generally be higher than a Grade 1 learner’s fees.

Have a plan: A good starting point is to enrol your child at a school that you can afford on your salary.

As soon as your child starts Grade 1, immediately increase your savings by the difference between primary and high school fees.

You will then be setting aside a realistic percentage of your salary for your child’s 12 years of education and the savings will supplement the annual fee increases in high school.

For example, if Grade 1 costs R1?000 a month but Grade 8 costs R1?500 a month, you need to save R500 a month from the beginning of Grade 1.

Note that this will be simply to cover future increases in school fees and you will need to save additional funds for tertiary education.

You can use an online calculator on websites such as to find out how much money you will need for your child’s tertiary education and how much you should be saving to achieve this goal.

Start a fund: Every parent should be saving towards their children’s education unless they plan on inheriting a large fortune.

To boost those savings, you can ask family to contribute to an education fund rather than buying birthday or Christmas presents.

Your children need an education more than they need toys.

Invest for growth: If you are saving for five or 10 years before you will need the money, ensure that you invest in a fund that will grow faster than the increases in school fees. Cash savings will not be enough as they return about 5% at most, compared with school fee increases of about 10%.

Consider investing in a unit trust that has exposure to property and equity (shares). A balanced unit trust will be a good option and several unit trust companies offer investments from R200 to R300 a month.

Use the government bonus: This is a government initiative enabling you to save for a child’s studies towards an accredited qualification at a public college or university.

You are paid an annual bonus on the investment, which can be 25%of the money you save annually up to a maximum of R600 a child.

If you save R100 a month (R1?200 a year in total), you get another R300 a year. To receive the maximum bonus of R600, you have to save R2?400 in total for the year.

The bonus can only be used by the learner. You can withdraw your own money but will then lose the bonus.

You can open a Fundisa Fund account at a bank like Nedbank.

Study loans: Most students have to consider study loans for tertiary education. Parents can help by paying off the interest portion each month so that when the child graduates, they only have to pay off the capital and not the accumulated interest.

There are also government assisted financial programmes like the National Student Financial Aid Scheme.

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