Invest wisely and early for education of your children
Education is becoming more expensive by the day and parents are battling to pay for tertiary fees for their children.
I'm a single parent who is finding it hard to pay for my daughter's fees while her father continues to ignore his responsibilities.
I must confess that I was tempted to out him on the recently launched Facebook page Izinja Ezingondliyo. Loosely translated it means irresponsible fathers who are not maintaining their children.
When she was born I took an endowment policy that I had hoped would help with her tertiary fees, but it matured when she turned 15.
That money only helped pay school fees from Grade 9 to matric and it was depleted.
Had I understood the high inflation rate in education, I would have made a better choice. Education is the best gift you can give your child and investing for tertiary education should start when the child is born.
Consumer Line spoke to Candice Harvey of Momentum who shared some important advice to help parents navigate this important investment decision.
Harvey said parents must first understand how much they need to save as education inflation runs at 4% above regular inflation.
"This means that the cost of education is increasing more rapidly than our salaries can keep up," she said, noting that a parent whose child started Grade R this year can expect to pay about R1.3-million for public education and R3-million for private schooling.
Harvey said to cover this eventuality, parents would need to set aside R2500 a month from the day the child is born at a 10% annual escalation for 18 years.
She said the investment vehicle one chooses should provide returns that will keep the investment ahead of inflation. Saving in a bank account is a safe mechanism that offers accessibility. However, it is not the ideal investment vehicle to achieve long-term growth because the return barely matches inflation.
Harvey said unit trusts and investment policies allow one to invest in growth assets such as equity, property and offshore assets.
This will give you returns in excess of education inflation. Unit trust investments are ideal as they could give you complete flexibility and access to the investment as and when you require it, whereas most investment policies are designed to mature at a specific date.
And you get charged a penalty if you withdraw the funds before the maturity date. If you would like your child to either travel or study abroad, then rather look at investing offshore, which will allow you to have the funds available in the currency you require, Harvey said.
"The best way to start saving is to do it as soon as possible as the benefits of compound interest will put you in a much better position than if you had not put any money away at all."