The Covid-19 pandemic has drastically changed the financial lives of South Africans, making saving for education even more challenging.
Uncertainty around job security, market movements and the duration of the pandemic are putting additional pressure on parents who need to get their children through education.
Further to that, the cost of education has soared over the last decade. And even though many education institutions revised their fee structures due to new developments such as the forced shift to online learning, it is likely that they will return to pre-pandemic levels when life resumes and demand for education returns.
Reports have estimated that if your child started Grade R in 2017, they can expect to have paid between R1.3 million and R3 million, depending on whether they attend public or private institutions, by the time they attain a three-year degree from a university in 2033.
Data from Stats SA shows just how significantly these fees have increased in recent times. Primary school fees increased by 7.3% in 2020 compared with 6.9% in 2019 and those for high schools increased by 7.6% compared with 6.9%.
Meanwhile, fees for tertiary education institutions climbed by 4.7% compared with 2019’s increase of 6.2%. This means that each year it’s going to cost significantly more to send a child to school or university in South Africa.
There are also all sorts of costs that parents will incur in addition to tuition fees. Current projections show that tuition, books, accommodation and other expenses – such as a computer, a smartphone and Cloud and internet access – are already costing parents around R300 000 to R350 000 each year, per child.
Cost of education in South Africa by 2022
· Public primary or high school: R50 000
· Private primary school: R152 000
· Private high school: R200 000
· University: R85 000
Cost of education in South Africa by 2030
· Public primary or high school: R105 000
· Private primary school: R255 000
· Private high school: R405 000
· University: R180 000
However, as a parent, you naturally want to ensure that your child has access to quality schooling so that they are given the best chance at succeeding later in life. This means that South African households will have to make more room in their budgets to account for rising tuition fees.
This may sound overwhelming, especially in the current economic climate. However, if you start saving as soon as possible – even if it is a small amount each month – you will benefit from the magic of compound interest. This ultimately betters your long-term gains.
Whichever savings or investment plans you opt for, it is prudent to create a debit order so that you remain a regular and diligent saver over time.
Fortunately, there are several ways that make it easier to save money for your children’s education.
Two kinds of products that you may want to consider are:
Inflation-linked unit trusts
Depending on which portfolio you buy into, inflation-linked unit trusts can help you to beat inflation as they have inflation-related targets as performance benchmarks. 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 should you require early access to your funds.
You can choose to invest a lump sum or a monthly amount as it suits you, and gain exposure to both local and offshore markets.
High fees combined with uncertain future markets might not make investing seem worthwhile at face value but starting to save from as early as Grade 1, or even earlier, will help toward ensuring you ride-out 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 a maximum of R500 000 over an individual’s lifetime. All the investment returns earned in the accounts are 100% tax-free and the money can be withdrawn at any point.
You can open a tax-free account for your child as soon as they have an ID number. Any money you save in that account becomes technically and legally your child’s money.
When they turn 18, they may decide to spend it on a trip abroad rather than use it to fund their tertiary education – so communicating the importance of a good education to your child from an early age is important.
There are a few provisions regarding a Tax-Free Savings Account that must be met, but if you speak to financial planner at Standard Bank Financial Consultancy, we’ll advise you on a financial plan that keeps you within the annual threshold amount of R33 000 and the lifetime limit of R500 000.
Buthelezi is the Head of Standard Bank Financial Consultancy.