This financial decision is one that could have devastating consequences for generations to come and parents are urged to follow a few simple guidelines to help them secure their children’s financial future.
Parents not saving for education
Findings in the 2013 Old Mutual Savings and Investment Monitor, which surveyed 1 000 metropolitan working South African households, revealed that the percentage of respondents making use of education policies decreased from 31% in July 2012 to 19% in July 2013.
Lynette Nicholson, head of research at Old Mutual, said the percentage of parents with dependent children who are saving for their children’s education decreased each year for the last four years – from 55% of respondents in 2010 to 40% in 2013.
“The 2013 result also marks a significant drop from 2012, when approximately 50% of the respondents with dependent children indicated that they were saving for their children’s education.”
The survey also found that the low savings rate for education was apparent across all income levels.
These findings are particularly worrisome in light of the fact that the results show that almost 38%of people said they would rely on their children to take care of them financially in their old age.
This is up from 26% in 2010. 51% of people earning less than R 6 000 per month said would rely on children in old age.
So who is going to earn the money?
According to a study by the South African Labour and Development Research Unit, South Africans who obtain a degree earn on average between 2.5 and 4 times more than people who do not complete schooling and are three times more likely to get a job.
It does not bode well then that the SA national census of 2011 found that only 28.4% of South Africans over the age of twenty years have completed the 12th grade while only 33.8% even got to high school and 8.6% had no schooling at all.
It’s clear that education is clearly the key to the financial future of South Africa – but how can parents save towards it in such trying times?
Here are some tips to build that educational nest egg:
It’s the simple rule of compounding. The longer the investment period, the more likely the fund will grow without too much strain on the budget for other expenses. Even small amounts saved up for a long time can become significant savings for your children.
Know how much you need to save – have clear goals
You cannot set realistic goals unless you know how much you are going to need.
A good tool to use when saving for your child’s education is the Old Mutual Smartmax Education Plan, which provides a range of tools for calculating the cost of education as well as other information.
Once you have a realistic savings goal, create a budget, and then stick to it. Even by just tracking where the money is going, you will be more aware of your spending habits and eliminate unnecessary spending.
One of the best ways to save money is to never see it
Set up direct debits and designate that some of your money goes directly into a savings account. Savings should be factored into your budget as a monthly expense, rather than just whats left over.
Monitor your returns and ensure that your returns are keeping up with inflation
Inflation can quickly erode your savings efforts. Regularly check your savings account and contributions and make sure that you are contributing enough to overcome the erosion effects of inflation. Your financial advisor can assist you here.
Don’t make withdrawals
The effect of compound interest means any withdrawal will severely curtail the final amount in the fund.
Encourage your child to contribute to their education with money from part time and holiday jobs
Not only will this help the final fund amount but it also instils in your child an understanding of the importance of saving.
Research possible scholarships and bursaries
There are many funding grants available and you should see if any are applicable to your child.
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