Planning For Your Child’s Education – Part I

By Nimi Akinkugbe

Naturally it is the desire of every parent or guardian to give their children the best possible start in life. One of the best ways to build a foundation for a secure future is through a sound education. Education opens doors to many opportunities, and is a necessity in today’s global economy. For the vast majority of people, funding your children’s education ranks as one of the largest expenses you will ever face and it must thus be carefully planned for.

Start saving now

If your children are still babies or toddlers, thinking about their future education may seem like a lifetime away. However, with the rising costs of education, the earlier you start making financial provision for this most important goal, the better. Certainly, the most difficult time to start an education savings plan is when your child is still young as for new parents who are just starting to build assets and facing the financial demands of a young family, this can be a challenge; yet this is the time that you should start saving in earnest.

Unless you are very well off financially, it may be difficult to suddenly have to come up with the money to pay for your child’s secondary or tertiary education when it is time for them to go. Prepare for these costs now rather than later; even if you can’t put aside a large sum each month from the onset, start with a small amount, and increase it whenever you can. With a head start, your funds will have time to appreciate and weather the inevitable ups and downs of the financial markets.

It is true that most advice on education funding focuses on building a savings plan early. This would be ideal, but even if your children are older and you haven’t been saving towards their education, it’s never too late to take steps to ease this burden and improve their prospects.

How much can you afford to set aside on a regular basis?

The amount of money you can set aside is a function of how much you can afford. Consider the assets you hold, your debt situation and what you can realistically save given all your other commitments. Your neighbour may be able to deposit N50,000 a month into Junior’s education fund; this may not be possible for you. Don’t be tempted to try copy others. Look at your family’s unique financial circumstances and determine what makes sense for you, what you can afford and can stay committed to, for the long term.

Automate your savings via a direct debit from your current account to an appropriate savings vehicle. This “forced” saving method will help you keep your plans on track. The key is to keep making steady, regular progress until your child completes his or her studies.

How much does it cost now?

In planning for your child’s education you must estimate what the total cost is likely to be. It is better to over-estimate than to risk having a shortfall which could affect your plans later on. Major expenses include tuition fees, accommodation, textbooks, computers, sporting equipment, uniforms, transportation, extra-curricular activities, private tutors and personal expenses, Even though the numbers will not be firm, having some estimates will help you to keep your goal in view.

Begin to determine the type of school that you are aiming for. Tuition rates vary enormously between state and private schools and there is a wide range within each category, so do some research regarding prices.

How much will it cost in the future?

By some estimates, annual increases in education costs range between 10% and 15% each year. Bear in mind that actual percentage increase in any year could be significantly higher or lower, and the rate could vary from public to private college. In any case, this means that a child born today will face a tuition bill several times more than what the average student pays today.

Factor in how much prices have risen year on year historically to help you make financial projections. On the internet there are numerous savings calculators that can help you visualize various scenarios – assuming a monthly or quarterly deposit of “X” naira, over a period of “Y” years, and applying an interest rate of “Z” %, you will be able to determine the total yield at the future date. You will also need to factor in exchange rate changes if it is your intention for your children to be educated abroad.

Play with the numbers a little to see what happens when you earn a higher interest rate on your deposit, if you miss a month’s payment, or are able to make an extra payment. A financial calculator will help you to determine how much to put into the education fund each month in order to meet a particular goal. For most families there is more than one child to consider so multiply the cost estimates accordingly and see the effect this will have on the overall plan.

As you prepare financially for your children’s education remember that while you want your child to succeed in life, you don’t want to drain all your savings and jeopardise your own financial plans such as planning for your retirement. Try to find a happy medium between finding a school that is affordable, and also offers a sound education.

In Part II we will discuss some of the various options for funding your child’s education.

Written by Mrs Nimi Akinkugbe, Lagosmums money management and financial specialist. For further questions or advise send email to [email protected].
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