Bayport Blog

Provide for your child’s education from day 1

Education may not guarantee a better life, but it is the best shot you can give your child at success. That’s why you should start providing for education as soon as your child is born.

Many of us approach the birth of a new baby in much the same way as a wedding: as if the journey ends with the event. There’s preparing the baby’s room, buying accessories like car seats and prams, and all the outfits and toys you are likely to receive as gifts from friends and family members.

It is only right that you should carefully and joyfully plan for your baby’s arrival, but it is not smart to spend a lot of money on stuff that is not really necessary. You will do your child more of a favour by buying less for its arrival and rather start putting money away for when the time comes to send him or her to school.

Here are some principles to consider:

1.Early childhood development is hugely important, therefore providing for your child’s education should include a good crèche and pre-school and primary school. Do not make the mistake of thinking that a great high school can plug all the gaps that developed in the early years.

2. The most important thing when it comes to saving for education is to start. It is difficult to imagine your newborn in a school uniform, so don’t think you have to know which school you want them to attend before you can start saving. In the six years before they start school, many things can happen and you may not even be living in the same city or country when the time comes. Therefore, decide on an amount and start saving as soon as the baby arrives – you can finetune your plan later on. The sooner you start, the more time you have to benefit from the compound interest, which is the interest you earn on interest and which really gives your money a boost.

3. Increase your savings amount every year. Inflation eats into savings, hence you have to increase the amount you set aside by at least the rate of inflation for your money to grow. If at all possible, increase your contribution by more than the inflation rate.

4. Do research and get advice to find the savings vehicle that is best for you.

o An ordinary savings account is a good place to start, but not the best way to save for your child’s education because of the low-interest rate. A better option is a savings account where the interest rate is linked to the amount in the account and the length of time you keep the money in it.

o Most financial services companies offer education plans in the form of endowment policies. This means that you make a monthly contribution for a specified period and the policy pays out a lumpsum amount at the end of the period. The minimum investment term is generally five years. It is a good idea to link your education policy to life cover so that your child’s education is assured should something happen to you.

o Open a tax-free savings account (TFSA) in your child’s name – you can do this as soon as your child has an ID number. You can save R36 000 per year in the TFSA with a current lifetime contribution limit of R500 000. With the power of compound interest, a relatively modest investment should cover the cost of your child’s education.

o Unit trusts are a simple and cost-effective way to invest in the stock market. You can do this through an asset manager or through a linked investment service provider. Don’t feel intimidated if you’ve never invested before – do some research on the internet and then talk to a financial advisor about your options.

Regardless of the savings or investment plans you choose, it is most important that you create a debit order so that you remain a regular and diligent saver.

5. As soon as your child is big enough to understand the basics of money, get them involved in their education fund. Put up a chart on the wall and let them track the growth of the fund with you. It is an excellent way to learn the principles of financial management and will motivate all of you to keep focusing on the goal.