On The Money: Expert Tips on Saving for your Kid's Education

>> Wednesday, November 28, 2012

Saving for your Kid's Education
taken from ANC's On The Money
with Arlyn Tan, AIM-Sun Life Financial PLanner

Parents want the best for their children and that includes the best education that they can provide.
However, good education doesn't come cheap, so parents have to know the best way to save and invest for this.

Why do parents need to plan for their children's education funding today?
Apart from giving quality time to their children, we know that the most valuable investment a parent can give to their child is a good education.

Education is the key to opportunities for your childen in the future.
The chance to a better job, to a better life, comes with a good education.

The Education fund needs to be planned early because it comes sooner than other needs like Retirement.
We have a shorter time to prepare for our children's education compared to other needs in life.

In the Philippines, a family on the average has 2 to 4 children simultaneously going to school.
This makes Education costs to eat up a big part of your budget.

But 90% of Filipinos plan only 1 year befor school starts.

So how do we save up for our kid's education?

1. The First step is to know your objective. What is your dream for your child? Where would you like your child to attend college?

2. Decide what kind of fund you are planning for - is it for High School or College? Do you want to include in your plan other education-related expenses like miscellaneous fees or just the tuition fee?
Sometimes, these other expenses (books, cost of daily allowance, boarding, extra-curricular activities, etc.) are higher than the actual tuition fee.

3. Come up with your target figure. Ex. P2 Million for a 4 year course.

Make sure to factor in tuition fee increases and inflation when you compute for the value of the education fund you want to achieve.
You can use the assumption of 10% annual tuition fee increase.
So if 1 semester of your target school is P50,000 today, next year this will increase to P55,000.

If you have a 3 yr old child today, by the time he starts college at 18 years old, this would be P208,000 per semester!

4. After arriving at the target amount needed for your child's education, decide if you want to plan for 100% of the amount, 75% or less.

Or, how much do you have now that we can work with?

A Financial Advisor can help you in computing for the monthly investment you would need for your target amount.
Figure out how much money you can save for this and how much monthly investment is needed to achieve your goal.

You can also put in a lump sum.

Recommended products for setting up an education fund
1. Mutual Fund. This is an investment fund that can give an average projected return of 10 to 15%.
2. VUL - Variable Universal Life Insurance. This is an insurance plan with investment fund.
The insurance plan ensures that whatever happens to you, your child will receive the education fund.
The investment fund gives an average projected return of 10 to 15%

If you want to guarantee that your child will get the target education fund you plan for, you need to get an insurance equivalent to the target education fund you want for your child.

The purpose of this is if something happens to you (like death or disability) and you can't work anymore, your child automatically gets a lump sum amount.

From this lump sum, a part can be used to provide for his daily needs, and a part will be invested to fund for his education in the future. Your child will get the lump sum even if you haven't completed the monthly deposits for your child's education fund.

So if you target P2 Million for your child's education, you need to get a corresponding life insurance of P2 Million to serve as your cushion in case
the unfortunate happens.

In Summary:

1. It is important to start early. Start investing now.
The earlier you start, the more time for your money to grow.
You can even start even when you don't have a child yet.

This would enable you to sit in the shade because you planted the tree a long time ago.

2. Save as much as you can
Putting in more would enable you to take less time to reach your goal!

3. Have a Financial Advisor study your needs so that you can get an objective solution.

4. Find investment solutions that will give you higher returns. It should be higher than the tuition fee increase rate (10%) and inflation rate (4%)
Make sure to invest only with reputable and legitimate companies to avoid scams.

5. Review and evaluate your objective, plans and funds regularly.
Your needs and income may change as the years go by.
If a new baby is born into the family, you might want to setup an education fund for the new member of the family.
If you change jobs and get a higher salary, you might want to increase your monthly deposit to your fund.

Hope this helps!

Feel free to get in touch with me at grace.c.cunanan[at]sunlife[dot]com[dot]ph for a sample Road Map on how you can start Saving for your Child's Education.

Happy Saving and Investing! 


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