Are You Prepared to Give Your Kids A Flying Start? A Quick Guide to Education Planning

Did you know that 74% of parents are paying for higher education costs out of day-to-day income? 

The question that most people turn away from is: What happens if your income takes a hit during those four crucial years your child is at university? 

Costs of education are rising, and here in the UAE, most parents pay tuition fees from Kindergarten all the way through high school, and then undergraduate studies. 

Average pre-school, primary, and secondary education fees in the UAE are in the range of US$ 145,000, and that’s before university is in the picture at all. Premium schools in the UAE are up to 140% higher than that average. 

Education, then, is a substantial on-going expense for most families, and one that parents cannot afford to disrupt by any income discontinuity from a career change, a dip in business, loss of a job or any other financial turbulence. 

Education planning is an essential safety net, and yet, that statistic: 74% of parents globally pay these very anticipated fees from their day-to-day income instead of creating smart savings and investment plans to fund them. 

In this article, I want to break down some of the easiest ways to get started with education planning. 

First, know how much you need to save up. 

This might seem like an impossible answer to have when your child is four years old. There’s no way of knowing what they might want to do, right? 

But think of it this way: based on your current income, what is the best possible education opportunity that you can afford for your child? 

Let’s say that I would like my children to have the opportunity to study at a top-rated university in Canada. Fees at this university work out to about US$ 30,000 per annum, and I would need to save for four years of undergraduate study. 

A key tip here and one of the most common education planning oversights: Don’t forget to factor in inflation! 

Let’s assume annual inflation rates in Canada are at about 3% per annum. I now have to think about a 3% inflation rate for 14 years if my child is four years old today, and I’m paying their first college tuition fee when they turn 18, I now have to think of the tuition fee as US$ 30,000, growing at the rate of 3% per annum. 

I’m now looking at $45,000 per year, taking inflation into account. 

Next, work in reverse to figure out how to get to that goal. 

Now that you know how much you need to save and by when, break the goal down into what you need to put away every month. 

Let’s assume I need to save a total of US$ 180,000 for tuition fees, living expenses, and factoring in inflation, to cover four years of undergraduate education for one child in Canada. And I have 14 years to hit that goal if my child is four years old today. 

That means I need to save US$ 12,875 a year, or a little over $1000 a month if I am putting money away and making no returns whatsoever on those savings. 

Depending on what asset classes I might choose to invest in and my appetite for risk and the rate of return I achieve, I might be able to drop that capital amount down to even $700 a month. 

If you don’t want to roll your sleeves up and go elbow deep into the Excel sheets with this one, then I recommend using an education planning calculator. 

There are some great resources out there. Most banks have an education cost planning tool on their websites, too. (If you feel stuck, though, feel free to drop me a message if you need some help. I’ll have my team hook you up with a helpful tool or two!) 

Here’s a tip: Work with a Financial Planner. 

Contrary to popular belief, a Financial Planner’s primary job is not to sell you an investment plan or product. It is to evaluate your current finances and goals and help you create a blueprint or a plan to get you there. 

Here’s another tip: Education planning goes hand in hand with Life Insurance. 

An education savings plan is based on the premise that the payer (a parent, typically) is alive and able to pay premiums into this savings plan until its maturity. 

But even if you are a part of the 26% of parents that do have an education savings plan in place, if you, the payee aren’t able to pay into that plan because of death or critical illness, then your child still stands to lose the opportunity you worked so hard to build for them. 

A well-structured Life Insurance policy for the full estimated cost of education is an effective way to mitigate that risk and foolproof your child’s future. 

Like retirement, your children’s higher education might seem like a far-off goal – something you feel confident you can handle in the distant future, or something you’ll be more comfortable looking into a few years from now.  

But as with most aspects of financial planning, ‘too early’ is the perfect time to get started.