The price of education

A parent’s natural instinct is to provide the best for their child – everything from the food they eat (less sugar!), to the habits that they inculcate (quickly call uncle and aunty!). That desire to provide them with the best naturally extends towards their education. But with education costs at a seemingly unstoppable uptrend, when should you start planning, and what can you do to save up for your child’s education?

Is it too early to plan?

How old should your child be before you start planning? The quick answer? As soon as possible. Starting to save early, and gradually, would give you more time to reach your target funds thanks to the magic of compounding.

If you’re a new parent, you might be thinking—why should I plan for something that takes place almost two decades down the road? The reason: costs will be high, and is expected to continue to rise. Here’s a look at the current tuition fees and related costs for an undergraduate education, both local and overseas.

In Singapore public universities, a four-year undergraduate program costs on average S$40,000 for Singapore Citizen students. This is approximately a third higher than what it was 10 years ago, and does not include other miscellaneous fees. With demand rising, it’s safe to assume that fees are likely to increase further.

If you’re thinking of sending your child to an overseas university in Australia, the UK or America, the fees charged by universities are markedly higher, ranging from S$16,000 to an eye-watering $86,000 per year. Factor in student accommodation, living costs and flights, and the amount could reach $100,000 for a single academic year, which is just about enough to wonder if you will ever retire.

Now let’s take a deep breath, and talk about how.

How should you plan for your child’s future?

Start by identifying the approximate amount needed, and how many years you have to reach that target. A Singapore-based student typically enters university at approximately 18 years old (or 20 years old for males). The savings target should factor in education cost inflation, or the possible increase in fees over the two decades. Based on the average cost of $40,000 for a Singapore undergraduate education, with an annual inflation rate of 1.6%, the amount in 20 years’ time would stand at about S$55,000.

From this, work backwards to determine the amount you need to regularly set aside, taking into account the benefits of compounding interest on your savings over time.

Need help working out the sums? Our education calculator lets you calculate how much you might need, and the amount to set aside each month.

Investing in your child’s education

Even if your expected savings do not match the target amount, don’t worry. Apart from making frugality your faithful friend, you could also speed up to your target by considering savvy investments. Talk to a wealth planning manager, who would be able to provide you with sound advice on possible next steps.

A popular option for parents is to start with an endowment plan that protects your savings, and a savings account that earns you higher interest.

An endowment plan helps you grow your savings with fixed returns, and lets you choose the payout age, to match with your child’s educational milestones. Plans such as ManuEdu First – Education Endowment Plan, allow you to pay premiums for the first 10 years, then get back at least 100% of your total premiums paid upon maturity, plus additional Fixed Cash Benefits. On top of that, you also get to opt for riders that protect you and your child’s education chances should you encounter an unfortunate event.

Other ways to increase your saving power include opening a savings account such as DBS Multiplier Account, which rewards you with higher interest of up to 3.8% p.a. when you credit your salary and transact in one or more of the following categories: credit card spend, home loan instalment, insurance, and investments. Best of all, there’s no minimum credit card spend or salary credit required.

On top of that, there are numerous investment products that you can consider to help grow your money. Depending on your investment profile, you could opt for unit trusts, bonds, equities or Exchange Traded Funds (ETFs). Investments do carry risks, so do your research, and consult a financial expert.

See also:
Monthly Investment Calculator

No matter which way you choose to go, remember to schedule regular reviews of your savings to ensure that you are on track. Adjust saving patterns or make appropriate changes to your plans if necessary.

Sources:
¹http://www.nus.edu.sg/registrar/info/ug/UGTuitionCurrent.pdf
http://admissions.ntu.edu.sg/UndergraduateAdmissions/Pages/tf_17.aspx
https://www.smu.edu.sg/about/financial/tuition-fees
https://sutd.edu.sg/fees
http://uc.suss.edu.sg/tuitionFee.html
http://www.singaporetech.edu.sg/sites/default/files/AY201718_Tuition_Fees.pdf

²https://www.topuniversities.com/student-info/student-finance/how-much-does-it-cost-study-australia

³https://www.topuniversities.com/student-info/student-finance/how-much-does-it-cost-study-uk

⁴https://www.topuniversities.com/student-info/student-finance/how-much-does-it-cost-study-us

DEPOSIT INSURANCE SCHEME
Singapore dollar deposits of non-bank depositors and monies and deposits denominated in Singapore dollars under the Supplementary Retirement Scheme are insured by the Singapore Deposit Insurance Corporation, for up to S$75,000 in aggregate per depositor per Scheme member by law. Monies and deposits denominated in Singapore dollars under the CPF Investment Scheme and CPF Retirement Sum Scheme are aggregated and separately insured up to S$75,000 for each depositor per Scheme member. Foreign currency deposits, dual currency investments, structured deposits and other investment products are not insured.