SAVING FOR YOUR CHILD’S EDUCATION

As parent, we already want the best for our children . A good higher education is crucial to ensure that a young adult get the right boost to begin his or her career. But we also know that the cost of education is rising. How can one afford the cost?

One key is to start saving early. Waiting until the time comes to pay the collage bills is too late. Experts say, the best time to start saving for your child’s education is to as early as possible, preferably from the moment of the birth. Early consistent savings let you enjoy the power of compounding interest to achieve your goals.

One of the tools parents can use to save for this higher education expenses is Life insurance or Takaful investment link .This policies have a savings and investment component that ca be used to put aside money for the cost of education and these investment will be managed by professionals.

On top of that, the protection element will ensure that the child has sufficient fund to have the education that the parents desire, even if something happens to the parents and they are no longer around or they are disable or ill and unable to work.

With the payor benefit, upon the premature death, or critical illness, or total and permanent disability of the policy owner, depending on the option selected, future premium are waived.

Another benefit of using life insurance as a savings and investment tool for a child’s education plan is the tax advantages. Insurance proceeds are tax-free and one can obtain tax relief of up to RM 3000 for education insurance, subject to approval by the inland revenue board.

How much does one need to save?

This depends on a variety of factors.

First consider the tuition costs which varies according to the field of study and the university. A course in medicine for example, cost a lot more than one in business. Next consider the costs of living expenses. If the desired university is near your home, then living costs would be much lower. However if it is education overseas you dream of for your child, you need to take to account the costs of room and board, food and laundry bills.

Other expenses such as books supplies and equipment need to be considered as well.

Once you have estimated the annual costs, multiply this number by the number of years of study. If the education is overseas, make sure you take the exchange rates into account.

You also need to take into account the effects of inflation. If the estimated tuition costs today is rm20000 a year, this figure will be about RM31,160.00 in 15 years time given a mere 3 per cent yearly inflation rate.

The next questions is then, how much does one need to put aside monthly? That depends on how much time you have before your child needs to go to collage and the estimated rate of returns you can get.

Your life insurance adviser can help you estimate how much you need to put aside in premiums every month to get the targeted amount in the time period required using the policy illustration.

Cost of Education - Local

• For BA Businesss Administration Courses ( 4 years Course )
• At 3 % p.a inflation
• Source : University of Malaya, August 2007

Multimedia University Website, August 2007

Cost of Education – Overseas

• For BA Businesss Administration Courses ( 4 year Duration ) – international Student
• At 3 % p.a inflation
• Source : University of Sydney , August 2007

Columbia University, August 2007

University of London Website, August 2007

IF YOU FAIL TO PLAN

Do you want o compromise their Future ?

Tough Start to an already challenging life

• without higher education, it would be a very tough start to an already

challenging life. You have a choice now to create the kind of life you want for your children.

Denying your child the opportunity to maximize tier potential

• none of us want to see our child losing the chance of reaching his fullest academic potential especially when he is very talented.

Force to work Early

• your child might be forced to work as early as the age of 17 due to not having the opportunity of a good education and worse, in an unfulfilling job that he has no interest in and if your child has to work and study at the same time, he might not be able to concentrate and do well.

Study later through self-financing

• Some say they can work first and study later but many once in the job market lose interest of going back to university.

POSSIBLE SOLUTION

Savings & Investment :

Bank savings is an option but with the current interest rates, fixed deposits are not as attractive as they once were. In fact, if you keep the money strictly in deposits, you will face the risk of inflation eating into your fund. There is also the risk of not saving regularly because of lack of discipline. For other types of investments, your children’s fund will be exposed to all kinds of high risk and the money might not be there at the time your child needs it. All pose a risk and your financial goal may not be fulfilled. On the other hand, if an unfortunate event happens to the parent, who would continue to save/invest the money for your child’s education fund?

Scholarships/Grants :

Getting a scholarship is tough as it’s very competitive out there. Furthermore, your child will be subjected to certain restrictions of employment e.g. the child will be bonded to work for the sponsoring company with a limited salary for a number of years. What if your child is not happy working in that company? Your child will be stuck for many years.

Borrow :

Sometimes it might strain our relationship with our relatives or friends when we borrow money from them for our children’s higher education. They too have their own financial obligations to fulfill. Do they have enough for you as well?

EPF :

The money in EPF is meant for your retirement. By right, we shouldn’t touch those savings. Furthermore, are you sure that the EPF savings in account 2 is enough to fund all children’s higher education?

Self support :

Should you let your child do part-time study, he/she might not be able to concentrate on his studies working at the same time. Your child might will be physically and mentally tired as he needs to attend evening classes. It would definitely be a tougher route that can be avoided easily if you plan and start today.

Bank Loan :

Bank loans require collateral from the borrower e.g. residential property and fixed deposits. Interest rates as well are quite high and the repayment period can be limited to a certain number of years. Are you willing to repay the loan in limited years with a high

interest rate that works against you?