As schools resume from a long vacation in a few days to come, this is the time parents make a top financial decision as regards the school expenses of their children.
As most parents prefer to take their children to private schools for a more qualitative education, the cost of education is a burden that affects the personal finance of most of the families.
Hence, Financescape gives you the following tips on how to finance your child’s education without tears.
Tip 1. Plan early: Children’s education is one of the largest family expenses, therefore families are supposed to plan early enough. Usually, it takes an average of 16 years to train a child up to the university level. This is a long term activity that requires a lot of planning.
To plan very well, there are three important questions parents must look at:
1- How much money is needed?
2- How much money to save regularly?
3- How to invest the saved money?
i- How much money is needed: The earlier parents start planning for financing the education of their children the easier. Looking at the Nigerian education system, children spend an average of 6 years between kindergarten to primary school. Another 6 years at secondary school, and 4 more years at the university. Parents should therefore identify the school they want to enroll their children to, but they have to be realistic in the their budget and consider the income flow and outflow while searching for suitable school. By identifying the school parent will be able to establish the average amount of money they need annually- taking the age of the child into consideration.
ii- How much money to save periodically: After establishing the annual cost of the education, parent should use financial calculators or a financial adviser to calculate the amount of money they need to be saving periodically that will finance the school fees of the child- this can be monthly saving, quarterly, annually or lump sum.
iii- How to invest funds saved: Saving is not enough when it comes to financial management as inflation in Nigeria can easily render saving useless. If the family saves money in a bank at an interest rate of 5% and the inflation rate during that period is 11%, inflation will automatically erode the value of their savings over time. So, parents should look for an investment option where they can invest the education funds to grow over time higher than the inflation rate.
- Bonds/Treasury Bills: this is risk-free fixed income securities that pay a fixed rate of return over a specific period.
- Stock market: This the market where shares of publically quoted companies are traded. It is market for a long-term investment with high risk but the returns are usually higher.
- Mutual funds: this is an investment fund where the money is pooled from different investors for investment in securities like stocks, bonds, treasury bills, the fund usually benefit from professional management skills of the fund manager.
- Annuities: is a contract in which the investor makes a lump-sum payment or series of payments to an insurance company, in return, receive a fixed amount of regular payment for a certain period of time or until death.
While investing the funds it is important to consider the time you may need the funds as the longer you invest the funds the better, if you are investing for like 5 to 10 years before your child goes to school you can invest in high-risk investment options like the stock market.
Power of compounding
‘‘ If parents can save N25,000 every month from when the child is in primary one and invest the funds at an interest rate of 10% per annum by the time the child will go to university they will have a saving of N6,836,181.26’’.
Tip 2- Instalment payment: some schools allow installment payment of school fees and if you have an investment option, you can invest the funds while you pay the fees in installments. This will have an advantage on your monthly income.
Tip 3- Lump sum payment of fees: Parents can take advantage of the discount offered by some schools for a lump sum payment of fees. Some schools give a 10% discount for a lump sum payment this can be a form of saving if utilized.
Tip 4- Education Insurance or Takaful: Education insurance provides protection and saving for the financing of education of your children. The insurance product ensures the financing of the education of your children upon death or permanent disability of the fee-paying parent. a parent can subscribe to education insurance so that life unexpected events will not stop the children from getting the education they deserve to get, The education insurance products are offered by both the conventional insurance companies and the Ethical insurance companies (Takaful).
Tip 5. Child spacing: Parents that are starting a new family they may consider child spacing as an option because some schools provide a discount for siblings of their existing student, so having children close in age may bring some savings when it comes to the financing of children education.