Not unlike retirement annuities, most people cringe when hearing the term education policy, it brings up emotions of being sold a policy on the back of a an empty promise that it will provide for your child’s education when in reality it is never able to do so off the back of your measly monthly contributions. Yes, the broker has miss sold you a product and used your emotional attachment to your children to make a sale, but you the client also needs to take some responsibility here. R250 per month WILL NOT BE ENOUGH TO SEND LITTLE JOHNNY TO HARVARD.
So lets not call it an education policy, but rather an education calculation, it has nothing to do with a specific product, but simply we are trying to find the present value of future cash outflows and how to account for that present value on a monthly basis. Let me break it down. If we start when your baby is born, you will have 22 years to save for their education, starting when they are 6 (Grade R), through to when they turn 23 (final year of a 4 year degree) lets assume the following for a middle of the road private school.
- Grade R through to Grade 7 : R60 000 per annum
- Grade 8 through to Grade 12 : R80 000 per annum
- 4 year tertiary qualification(degree and post grad): R50 000 per annum
|Primary school||Secondary school||Tertiary|
|Age at start||6||14||19|
|Annual cost in today’s money terms||R 60,000.00||R 80,000.00||R 50,000.00|
|Estimated total cost in future value||R 1,215,562.40||R 1,854,728.57||R 1,419,196.69|
Now I don’t mean to scare anyone, but this a total future cost of R 4 489 487.66. How the hell do we afford that if we don’t start saving now? In today’s terms, we either need to invest a lump sum of R 1 918 304,54 or R 5 000 p.m increasing at 10%p.a for 22 Years. The above includes the following assumptions: 10% education inflation, investment return of inflation plus 3 – 4%, annual fees of 1.25%
You will see from the above, that I haven’t mentioned a specific product at all. I have simply put your child’s education into context, you knew it was going to be expensive, you had an idea of the total amount and now you know what you need to do to make it happen.
If you are like me, you love living in our beautiful country, it is the land of opportunity, we have amazing weather, amazing people, amazing places to see, and you want to stay here. You also know that it isn’t all sunshine, yes we have crime, yes we have poverty, but we finally have a government who is trying to fix all of that. I am of the view that if I want to live in this beautiful country I need to make sure that I give my son the best opportunities that I can and the number one priority is his education. I have done my sums and implemented his future education plan, shouldn’t you do the same?