Saving for your children’s education requires a long-term plan and with school and university fees on the rise, the consequence of not planning could result in significantly diminished net disposable income or the inability to pay fees when they arise.
Many families underestimate the true cost of sending their children to university and by falling to plan properly find themselves unable to meet the rising cost of education.
The education sector is one of the best markers of inflation and economic conditions. If the schools are full and prosperous it shows that those local areas are doing well. However if your local International schools are struggling to obtain enough pupils to cover costs then the risk that fees may go up just to keep the schools open increases. Either way there will be pressure placed on the cost of International school fees.
Three simple Facts:
- Education fee costs will continue to rise at a rate approximately two percentage points above inflation;
- The average rate of annual increase is 6% – which means that the fees will double every 12
- Starting an education savings plan at least 10 years prior could save you as much as 50% of the cost
It is very important that you start saving for education fees as quickly as possible. Using a 15 year example below:
Parent A started saving for his children’s school fees in 1995. He invested £1,000 per month and achieved an annual growth of 6%. At the end of the 15 years he had a school fund balance of £288,310 in 2010.
Parent B started saving for his children’s school fees in 1998. He invested £1,000 per month and achieved an annual growth of 6%. At the end of the 12 years he had a school fund balance of £208,950 in 2010.
The cost of delaying his start date for Parent B is £79,360.
An interesting metaphor to illustrate the effect of compound growth in later years and why it is so important to start early is the golfing example. If at the start of a game of golf you bet your partner 10c for the first hole and you agree to double the wager each hole, so that the 2nd hole is 20c, third is 40c, and so on. What do you think the wager would be at the 10th? $51.20, at the 15th $1638.40 at the 18th it rises to $13,107.20.