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The cost of educating a child is for many parents across South Africa- their number one concern. Especially when one factors in sharp increases in education inflation, with the figure for 2017 expected to be as high as 9.5%.
Alarmingly, education inflation is higher than South Africa’s Consumer Price Index (CPI) and this gap has widened from around 2% in the early 2000s to a probable 4% in 2017. This means that a parent whose child starts grade R in 2017 can expect to pay between R1 332 112 and R3 011 415 - for public or private education respectively. This rand amount includes primary school, high school and a three year University qualification,” says Old Mutual’s Head of Financial Education, John Manyike.
He also notes that parents are not saving enough to be able to provide for their children’s education and the related inflation of these costs. He references the 2016 Old Mutual Savings and Investment Monitor, which revealed that 54% of urban South African parents are still not actively saving for their children’s education.
“Saving for education is like saving for your retirement, you wouldn’t start a year or two before you need to retire. So the best course of action is to start saving as early as possible. Even if you can only afford a small amount to begin with, the important thing is to start. There are a number of educational policies or savings instruments in the market and you should ask your financial advisor to assist you with a financial plan,” adds Manyike.
He also notes that parents should consider a number of additional costs, beyond only the fees of educational institutions. “You also need to factor in the costs of school uniforms, text books, stationery, transport, food, extra lessons, extra mural activities, pocket money, accommodation, etc. when putting together a financial plan for your child’s education.”
Manyike encourages parents to consult financial advisers to explore savings instruments that offer inflation-beating capability, the flexibility of a lump sum contribution or scheduled contributions as well as ensure that parents are aware of the corresponding risks associated with each type of investment. He also notes that parents should make sure they are dealing with an accredited financial advisor and a reputable financial institution that will be transparent and provide all legal disclosures to parents.
“The gift of education is the best thing you can offer your children as it will prepare them for life and will give them a good start. Furthermore, a well-educated youth is essential to the sustainability of South Africa’s economy,” concludes Manyike.
For more financial tips, please join the Old Mutual digital community by liking the On The Money Financial Education Programme on Facebook, following the Twitter handle @om_onthemoney or requesting your free financial education workshop for your community group or group of employees by emailing your request .
*The figures on the cost of education are based on selected ex-model C government and private schools and universities. The projected annual fees are increased at a flat rate of 9.5% annually. This includes university fees where the long term strategy for fee increase restrictions are still uncertain. The 2017 university fee increases were in line with actual restrictions imposed by government.