Raising a child is one of the most beautiful experiences of anyone’s life, but that doesn’t mean it comes without any challenges. One of the major worries that plague the minds of parents is their child’s education.
We can see this trend in the UAE, as an average family pays close to 365,000 AED for its child’s education from kindergarten to the first four years of college. The survey was done by HSBC, and shockingly, this number is more than double that of the global average.
Studies also show that education costs are on a constant rise at a rate of 7% a year. This is primarily due to the high inflation rates in the education sector. So, by the time a one year child enters college, the cost of education would have increased by over three times the current cost!
The above HSBC study also showed that 84% of the parents believe that their kids will have a bright future. However, in order to secure that bright future, it is more important now than ever, that parents and parents-to-be start saving early for education, as the impact of compounding interest cannot be under-estimated.
Let us walkthrough on how best you can protect your dreams and ambitions for your little ones :
Step 1: Decide where you want to send your little tot for education
It is hard enough to figure out which school and activities to send your child to so figuring out where your tiny tot will go for college,10 – 18 years from now requires a bit of foresight. However, the alternative, that is the cost of not planning, is immense. As this study by Friends Provident International shows, the variation in the cost of education between let’s say India and the US is over 10 times!
One has to start thinking about whether one wants to send his/her children to their home country or abroad fairly early on to make sufficient provisions for the same.
Step 2: Consider inflation
Now that you have decided (well, sort of decided) where your children will go for their further education, one has to look at specific education inflation rates in each country to assess how fast these costs are growing. For example, in the US historically cost of education doubles almost every 10 years.
Step 3: Start saving!
Armed with the savings goal, there are various tools available in the market to safeguard your child’s education.
- One can put aside certain amounts from salaries on a regular basis in diversified assets such as stocks and bonds. Discpline is the key as there is always temptation to withdraw the monies and use the funds for other short to medium term needs;
- There are various savings plan offered by insurance companies such as Zurich International Life, Friends Provident Interntionaletc which allow for investments in diversified portfolios in a systematic manner. The maturity amount of these plans are typically excluded from taxation, giving you tax benefits in the long run.
- Various governments have schemes to help their citizens save for education (example 529 plans for US citizens). These schemes typically offer tax benefits.
When making a decision of which set of options to choose, carefully evaluate the cost of investment, your risk appetite and whether the returns compensate you for the risk you are taking.
Step 4: Protect your savings!
Life is uncertain, that goes without saying. All the planning and savings takes a parent only so far. When it comes to a child’s education, one should hope for the best but plan for the worst.
For as long as you are alive, you will diligently save for your child. However, if you were to fall critically ill or die, without a safety net protecting your income, your child’s future will be in jeopardy. It is always advisable to protect your income(s) via a term life or a whole of life insurance plan.
Opting for an education savings plan will help your child in his/her education but it is not sufficient. lt lacks the complete coverage that can only be offered by combining the savings plan with insurance coverage. Hence, we recommend the purchase of a term life insurance plan in addition to a child education plan to offer your child the complete financial protection they deserve.
Choose wisely as different insurance companies offer different options to the consumer. Take the time to review plans and discuss their pros and cons. We are happy to sit down with you and share our experience and knowledge and guide you on your journey to safeguard your child’s future.
Please leave us a message at New Age Insurance Brokers and we will be more than happy to help.