Home   >   Family Finances   >   Don’t break the bank

Don’t break the bank

By on August 4, 2008
Photo © Elena Derevstova
One of our most emotive issues is 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 including boarding costs, £258,000 will be needed through high school and university from age 11. We must also consider the air fares parents pay to visit their children or for them to come to Japan between semesters. Many expatriates benefit from employers funding their children’s education, but will they get the same perk after returning home? University fees are rarely covered so they at least need to think about how they fund higher education.

4-year US college fees, depending on its status as state or private, could typically cost between $40,000 and $120,000 excluding the extras like accommodation and 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, e.g. a grandparents
– Raising a mortgage on property or obtaining a personal loan
– Selling investments or assets to pay fees

Investing with 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 is 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 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$1,259 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 than parents with bright children who cannot 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.

Article by IFG Asia Limited, a Tokyo-based Financial Planner. Visit www.ifg-asia.com or email info@ifg-asia.com

About Robert Williams

Robert Williams is Branch Representative of IFG Asia, part of the IFG Group plc, with offices in Tokyo. www.ifg-asia.com / rdw@ifg-asia.com