Johannesburg – Investing for your children could be seen as a luxury, but with the cost of education soaring, it’s looking more and more like a necessity. And with more than 1-million children born in SA every year, it is not too early to save for your child’s education.
Data released by Old Mutual earlier in the year showed that education costs will continue to climb in the years ahead.
The financial services group’s data show that if your child started grade R this year, with education inflation at 9%, you can expect to pay about R1.6-million for public schooling up to matric and a three-year university qualification. By comparison, if you choose private schooling and university, the cost doubles to R3.7-million.
Depending on the education choices you make for your children, it’s likely you might feel some financial stress once your children start school.
That is why it is important to consider the best option to save for your child’s education.
Unit trusts
If you have a long-term saving goal, you would want to look at asset classes that have the best chance of outperforming inflation over the long term. Given that education inflation is much higher than consumer price inflation, it’s no use keeping your savings in cash because that will underperform against inflation over time.
Tax-free savings accounts
A tax-free savings account is a smart option. Deposit any amount up to R33 000 a year (single or multiple deposits), and you will not be taxed on the amount, so any money you save will grow at a relatively faster rate compared to regular savings accounts.
Start saving as early as possible and keep within the annual threshold amount and the lifetime limit of R500 000. 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.
Bank savings accounts
While keeping some cash in the bank in a savings account is good, it’s not recommended as the ideal way to save for your child’s education.
A standard savings account won’t attract the level of interest that a good investment plan could offer. Speak to a financial advisor.
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