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Education costs: start saving now

An Old Mutual study shows educating kids could cost parents millions as inflation continues to rise.

Grade one learners on their first day of school at General Alberts Primary School in New Redruth, Alberton, 9 January 2013. Picture: Sapa.

JOHANNESBURG - With thousands of South African children starting school this week - many for the first time - the rising cost of education is likely at the forefront of most parents' concerns.

The Old Mutual Savings and Investment Monitor study attempts to break down the likely total cost of educating your child from toddler to student.

If the child starts grade R this year, the study found, the combined cost of education is likely to be R950,800 for public schools and R2,207,000 for private.

This includes primary school, high school and a three-year university qualification.

Sinenhlanhla Nzama, Investment Marketing Actuary at Old Mutual, says it's never too soon to start saving towards your child's education.

"In the famous words of our late president Nelson Mandela, 'Education is the most powerful weapon you can use to change the world.' We all want the best for our children and this means getting them a good education to ensure that they fulfil a greater purpose in their lives."

This goal is becoming increasingly difficult to finance, yet the study reveals that 54 percent of South African parents say they don't have any idea what the future cost of education will be and only 40 percent are saving up.

"This is alarming when you consider that a good education can end up costing hundreds of thousands of rands," says Nzama.

"Our stats showed that people are tightening their belts and education is one of the main areas where budgets are cut."

Education in 2014 will cost parents and guardians an average of between R23,000 and R42,000, depending on the level and type of education, he says.

By 2033, according to the study's calculations, a year's education will be anywhere between R118,600 and R215,500.

Tables courtesy of the Old Mutual Savings and Investment Monitor.

"Whether you are new parents, a single parent or an established family, the key is to start saving early," says Nzama.

"Life can be very demanding so parents have to be aware of the future cost of quality high school and university education. The later you start saving, the more you will need to save per month."

Assuming a 10 percent investment growth before fees, you need to save about R460 a month for university tuition (excluding accommodation, books and travelling costs) if your child is born in 2014, he explains.

However, this is about R870 (close to double) if your child is already 10 years old. These monthly savings will also need to be increased by 9% a year going forward, to keep up with the predicted inflation of education costs.

Nzama recommends a number of methods to save for education costs, including unit trusts, savings policies and government initiative, Fundisa.

Unit trusts tend to be aimed at beating the rate of inflation, which is particularly helpful in terms of education, Nzama says.

"Unit trust investments are ideal for people who require flexibility and access to the funds, however you must be disciplined and avoid the temptation of dipping into your child's funds."

Savings policies are fixed-period and can consist of either monthly premiums or lump sum payments.

Fundisa enables parents to save towards an accredited qualification at either a public college or university.

An annual bonus on the investment is available at up to 25 percent of the money you save annually.

"Start early, even if it's a small amount each month. It will always go a long way in the future after some investment growth," Nzama says.

Denzil Burger of the Old Mutual Investment Group says, if your child is starting school now and you want to start saving immediately, an equity-based portfolio might be the best way to beat inflation.

But he says such portfolios can be risky due to the volatility of the equity market.

"The sooner you can get started, the more you can afford to take risks and then, of course, get the better chance of meeting that 9 percent."

Nzama and Burger agree that the sooner one starts saving towards education costs, the better.

Timeline

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