Funding Your Child’s Education
One of our most emotive financial issues is how to provide for our children’s education. All parents want to ensure that their children have
the opportunity to receive the
best education money can buy, both during school and University. But it comes at a cost. Apart from purchasing property, education fees
represent one of the largest investments a parent will make. It will set back a British parent the princely sum of £278,000 for just one
child to attend a typical private school and university from age 3:
- £128,400 fees only at current prices
- £229,572 including fee-inflation at 6% and extras at 8%
- £278,825 including 3 years at University
Some expatriates choose to educate their children at home and incur boarding costs; an additional £258,000 through high school and
University from age 11. Air fares parents pay to visit their children or for them to come to Japan between semesters must also be considered.
Even expatriates who benefit from employers funding their children’s education have to consider whether they will get the same perk after
returning to their home country, and bear in mind that university fees are rarely covered.
Current 4-year US college fees will typically cost between $50,000 and $150,000 excluding extras like accommodation, books etc.
Also, school fees typically rise by at least 5% per year depending on the country so when you calculate funding needs, this must be
considered. It is therefore futile to invest in a low yielding asset like a Japanese bank account which cannot keep pace with the rate
of rising fees.
Unless your child is so gifted that he or she gains a full scholarship, you must make your own provisions. Below are some funding options:
- From salary, savings or income from an investment
- From a third party, eg a grandparent
- Raising a mortgage on property or obtaining a personal loan
- Selling investments or assets to pay fees
Investing Existing Cash
For those who have already built cash reserves, a range of options are available including secure and actively managed investments, which allow income distribution. One does not have to take high investment risk to achieve a return of over 5% per year.
Regular Savings Programs
One of the most popular forms of education funding are regular savings programs. If parents have the foresight to start saving when their child
is born, they have 18 years to accumulate sufficient money for university costs. Should the fees needed at that point be US$200,000 and the
regular savings investments achieve an average return of 7% per year, this will cost approximately US$525 per month – not an unreasonable
amount. However, if they avoided planning until their child was 10 years old, the monthly contribution needed to achieve US$200,000 over 8
years is about US$1,250 per month! It is never too early to start an education fund, some even start before they have children.
The danger is to under-estimate the true costs of children’s education. There are few more crushing blows for parents than being blessed with
bright children but being unable to afford to send them to a top university. Invest in the guidance of a professional financial planner to ensure that your children
have access to the best education.
July 2008
Nicholas Webb of IFG Asia Limited, a Tokyo-based Financial Planner.
Visit www.ifg-asia.com or email info@ifg-asia.com
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