We don't need no education - or do we?

Johannesburg - Thanks to the rising cost of healthcare, South Africans could now spend more than R2m on educating a single child. 

This was the figure given by Discovery Life at its most recent media roundtable in Sandton this week. Discovery Life is the life insurance business unit of financial services group Discovery [JSE:DSY].

“According to our figures, the total cost of private education for one child could exceed R2.2m today for the average South African family,” said head of research and development Gareth Friedlander.

The roundtable also included the presence of Maya Fischer-French, David Kop of the Financial Planning Institute and Discovery financial adviser Claire van Wyk.

The results came out of Discovery’s latest whitepaper, with findings which Fischer-French described as “quite terrifying”. It highlighted South Africans’ inability to fund their children’s education without stringent financial planning – and even then, it is not always affordable.

Using their claim statistics data and the World Bank average amount of children per South African household, Discovery calculated that this would amount to about R5m spent on school fees, roughly R2.2m per child.

That’s assuming private schooling for said child from crèche level to university graduation, but according to Friedlander the figures for public schooling were not much better, although he did not have exact figures on hand.

What is making education unaffordable?

“There are a number of trends contributing to this,” said Friedlander. “Firstly, children are starting school earlier and earlier, entering pre-primary and crèche which was not the norm some years ago.

“School used to start at primary school level – now there are a number of extra years for parents to think about, which adds up to an extra R200 000 [for one year’s private crèche and two years’ private pre-primary].”

In most schools every child requires a tablet and cellphone, this can contribute as much as 50% extra to core tuition costs. “We estimate that R5 722 must be saved from birth of the child to fund education increasing at 10% per year to fund one child from primary school,” he said.

“Education inflation is not linked to CPI, and education inflation has typically exceeded salary-linked inflation by 2% to 4% over the past decade – and that tends to compound.”

According to Friedlander, with nothing changing in your salary – if you start with crèche you would be spending about 18% of the average salary, that would have increased via education inflation to around 72% of your same salary by the time they finish high school.

This figure was based on a household net of tax income of R40 000 per month and using average private schooling fees. Other assumptions include the average family having 2.29 children, salary inflation of 8% and education inflation of 10%. 

“Of course, another problem is people aren’t saving to begin with,” added Friedlander. “Only 44% of Discovery’s clients have an education policy in place in their financial plan.”

Van Wyk added to this: “If I were to say that one percent of my clients achieved this, it would be a lot.” This is sobering, considering that those are the affluent “one percent” of the population that have things like Discovery products.  

What can be done?

“When we look at financial planning it’s got to be holistic than just products,” said Kop. “We as parents need to make lifestyle choices, for example – how are you using your bond? Do you need that fancy car?”

Kop also added that home schooling is becoming an increasingly attractive option for many, with more and more online access to free home schooling materials.

In terms of products, Discovery announced at the same roundtable that it has brought out a new Global Education Protector product for its clients, with an innovative new feature named the ‘education funder’.

It rewards policyholders who haven’t claimed and are making positive behavioural lifestyle changes with rewards back which are paid directly into the education fund. 

The payback benefits along with the product itself, according to Discovery, could in theory entirely fund a child’s education from creche up to third year varsity, for a fee of approximately R300 per month.

According to van Wyk, the true long-term solution for such education woes is to proactively teach children financial planning basics from young.

“There is always an element of education in a societal change. All my kids have got little savings accounts and understand about payment options and the like.” That way, perhaps, they won’t need education policy savers when their kids need educating.  

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