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For many people one of the biggest investments they will make in their lives will be in the education of their children.
However, the grim reality is that given the rate at which education costs are outpacing inflation and both are outpacing increases in average salaries, providing an education for one’s children will become prohibitively expensive in the next 10 to 25 years. Very few people will be able to afford private school education for their children in twenty years’ time, let alone a university or college education.
Unless, as with other events in your life like retirement or buying a house, you take a conscious decision, and start planning and saving right now. At Carrick we always advise our clients to take the long-term view and grow their wealth for the future, which should most compellingly also apply to the education of one’s children.
Start saving now
It requires a change of culture or mind-set, and strict discipline, just like people had to get used to using less electricity during Eskom’s supply crisis and currently have had to learn to save water in the Western Cape. It is essential to have clear goals and work towards them, as well as getting good financial advice to effectively tailor your plans according to your needs and ability.
This daunting reality of escalating education costs applies equally to parents with children in public schools and up to obtaining a basic tertiary qualification, as it does to high net worth individuals who may wish to educate their children in private schools, international colleges and universities. For the latter, the escalating costs will be even more astronomical.
Gone are the golden years where most of us took the school education of our children for granted and paid only nominal amounts in school fees. There is little to no chance that government will in future be able to substantially increase the subsidisation of a public school education to make up for the rapidly rising costs. And only a small number of children can expect to obtain bursaries, while a study loan from a bank could prove to be prohibitively expensive in the longer term.
The only option for those wanting to provide their children with an education over the next twenty years or more, is to start saving right now, even before your children are born. Fortunately, there are a number of products such as education policies available in the market to assist you.
What research has shown
To better understand this spectre of unaffordable education, let’s look at some recent research that was done and the numbers that came up.
Research released by BankServAfrica on its Disposable Salary Index (BDSI) in November 2016 showed that take-home salaries rose by 3.5% in October 2016 – about the average for the year – but that inflation caused disposable incomes to fall by 2.6% on a year-on-year basis. In 2016, the inflation rate in South Africa was around 6.34% compared to the previous year. At the same time education costs escalate by an average of 10% annually.
Although the numbers fluctuate from time to time, this trend continues, and the gap between what people earn and what they must pay for education, is ever widening. Which means the percentage of your income that you must pay for the education of your children is growing bigger each year.
In their 2017 Long-term Perspective Report Old Mutual found that education inflation is higher than South Africa’s Consumer Price Index (CPI) – the gap having widened from around 2% in the early 2000s to about 4% in 2017. The report projects that 10 years from now, at a 9.2% education inflation rate, a year’s tuition and board at a top private school would cost R482,000, compared with R200,000 in 2016. A year’s fees at the same school are expected to be R1,053,000 in 25 years from now.
Alarmingly, Old Mutual’s Savings and Investment Monitor shows that 54% of urban South African parents are still not actively saving for their children’s education. Although fees are lower, the same education inflation also applies to the public school sector.
How does one cope with this?
Parents have to accept the need to start saving early for their children’s education, factoring in not only tuition fees, but also all the other related costs. There are many ways to do this: for example, take some of the money you currently spend on luxuries or unnecessary things and put it aside towards your savings plan.
It is best also to speak to a financial adviser about the various available savings options. Above all, parents need to be realistic and take a holistic view about their cash-flow and savings efficiency to ensure they can afford to pay for their children’s future education.
As leading financial advisers, Carrick is committed to providing clients with the best advice and options available. If you would like more information on how we can help you plan for your child’s future education, contact a qualified Carrick adviser at [email protected] today.
- Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning. Carrick is also licensed in Zimbabwe and Botswana, and holds three global licences in Mauritius. Carrick at all times maintains its independence with regard to product providers and asset managers, providing bespoke risk assessment, financial planning and other services to high net worth individuals (HNWI). Through our own qualified and experienced financial advisers, as well as through partnerships with industry leaders in the fields of foreign exchange, tax, international property, offshore bank accounts, trusts, wills and estate planning, Carrick is able to provide the highest levels of service for your financial planning and investment requirements, both offshore and domestic. This communication is intended solely for information purposes for the use of designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information available to the public and from sources believed to be reliable, Carrick makes no representation that it is accurate or complete or that any returns indicated will be achieved.