Planning for your child’s education should begin at the pre-school level; giving your child a strong start will help them succeed in elementary school, high school and beyond. Soaring costs of post-secondary education and ballooning student loan debt has made education planning even more vital.
Failure to plan early can have long-term consequences that extend far beyond your child’s education. These include impacting your family wealth, retirement planning, and healthcare. The following tips can help you make the right decision early enough to protect your wealth and safeguard your child’s education.
1. Inflation is your enemy
As with any long term financial plans, the insidious threat from inflation can never be overemphasized. Over time, inflation can wipe out all gains from your savings and even eat into your principal.
Inflation in the cost of education tends to be higher than normal inflation, meaning tuition fees typically increase at a much higher rate. Any education planning you do must be designed to manage inflation risk.
2. Start early with education planning
A lot of parents wait too long before beginning their education planning. Is it ever too early to begin? The answer is no. In fact, the sooner you begin, which in this case means immediately after birth, the better. Waiting even a few years can set you back substantially.
The major reason for this is the value of compound growth. Your child’s education plan will have the potential to benefit enormously from the time period it takes to mature. Compound growth has a huge multiplier effect. The longer the period to maturity, the less you may need to contribute. This same principle applies to retirement savings and of course, any investing involves risks including possible loss of principle.
3. Take stock before you plan
Education planning requires cost projections that should be as conservative as possible. The cost of tuition will likely be vastly different 20 years from now. Your child’s education plan must be tailored to meet anticipated future costs. For this reason, assess your position by:
- Evaluating the amount of funds you have currently set aside for education.
- Make growth projections based on inflation and assumed rates of return.
- Estimate how much anticipated education costs will be when your child gets to university. This should include living costs and inflation. A financial planner can assist you make these calculations.
- Work out the amount of the shortfall, and you will thereby arrive at the anticipated dollar amount you need to set aside.
4. Select the best products
There are many financial planning products that you can use to save for your child’s education. Make an independent evaluation of these products and ascertain whether:
- They meet your requirements and those of your child’s education.
- They offer the best possible return potential, without taking on too much risk.
- The financial health and track record of the company offering the product.
- Assess the independence of your financial planner. A lot of financial planning firms recommend certain products from companies with whom they have an affiliation. This may result in conflicts of interest.
- Affordability- ensure you can set aside the required amount and where possible, adjust it in case of any eventuality.
- Assess the tax efficiency of the product. Many education plans have tax efficient features. Getting the best tax options can help increase the amount of total contributions you make.
Where should you put money?
There are several vehicles that you can use for education planning. These include:
- Life insurance plans
- Bonds and other securities
- Equity investments
- Exchange traded funds and unit trusts
- College prepaid tuition plans
- State operated college savings plans
- Education savings accounts
- Education savings bonds
Education planning requires the input of an experienced professional to ensure your plan is financially sound. It should also be designed to specifically meet your child’s needs and your financial capability.
MultiGen Wealth Services can help guide you with your own personal plan to secure your financial plan. Just send us a message!
* The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.