Advertisement
Advertisement

Invest in their future

Chris Davis

Parents should start saving early to meet the rising costs of education

They are our precious offspring and we love them dearly, but one of the daunting prospects for many parents is the thought that their income could be all but swallowed up by the enormous outlay on their children's education.

If parents think that the cost of education is expensive, try factoring in the cost of complacency. With education inflation rising quicker than other types of inflation, many financial experts predict that the price of a university education could double or even triple over the next 15 years. A full-time education at one of Hong Kong's universities currently costs $40,000 to $50,000 a year. Add the cost of food and accommodation if the child studies in Britain or the United States, and this can rise to more than $100,000 a year.

For most parents, this is a significant amount of money, and many are simply not ready for such a financial drain. Some parents are not even aware of the potential financial severity until it is too late.

Claudia Tang and her husband, Ivan, have two children aged three and five, and say it is too early to start thinking about saving for tertiary education.

'We have so many other expenses at the moment and try to give our children all the things they need now. In a few year' time we will start saving for their education,' Ms Tang says.

But banks, insurance companies and financial planners all agree, the earlier parents start saving, the less the financial burden will be.

Ann Pearce, HSBC head of insurance products, personal financial services, says parents should choose a savings plan that spans 10 to 15 years.

'This gives parents the luxury of saving an affordable amount each month and the opportunity for diversification,' Ms Pearce says.

Not allowing for inflation, a monthly deposit of $570 invested from birth in an HSBC target protection fund - a life-based endowment product - provides a guaranteed cash value of $126,500 when the child reaches the age of 18. This is sufficient at current rates to pay for a three-year university degree in Hong Kong.

When it comes to choosing how much to save and how often, Ms Pearce believes a lump sum, regular savings or a combination of both are equally effective.

'Investments can be made in insurance-linked products or spread across different financial vehicles such as guaranteed funds [and] bonds. Insurance-based education funds can be set up with a trust wrapped around them that provides a legal obligation to educate the child if anything should happen to the parents,' Ms Pearce says.

Ms Pearce and her husband, Tony, who have two children aged four and 1 ?, have structured their savings into a range of diverse investments, including those that increase in value long term.

Hang Seng Bank, Standard Chartered and insurance companies such as AXA, Manulife and Prudential offer an array of education plans that can be tailored to meet the expectations of parents for their children's education needs.

Richard Eng, co-founder of the Beacon College chain of schools and tutorial colleges, opened a Prudential education plan before his daughter Stephanie was born.

'We originally planned for our daughter to attend secondary school and university in Canada, but we may review our options,' Mr Eng says.

Stephanie, aged nine, attends an international school in Hong Kong but may continue her education in Britain. 'Whatever course of action my wife Irene and I choose, we should have enough to cover Stephanie's education needs,' Mr Eng says.

Derek Young, chief executive of Ipac Asia, says parents should try to calculate how much they will need for their children's education.

'Parents should consider where they would like their children to be educated and factor in the cost of living and travelling expenses,' he says. 'Wherever possible, the money should be invested in a way that it cannot easily be used for other purposes.'

John Winsor, a senior pilot with Cathay Pacific, is depending on a long-service lump sum payout to cover his daughter Sasha's education costs. Mr Winsor and his wife, Nong, who works for Thai Airways, says the money will be further invested to keep pace with the rising cost of education.

'I believe it is vital to have money put aside for our daughter's education and [that it is] protected so it can't be spent on boy's toys such as sports cars and cricket tours,' she says.

As a parent with a 3 ?-year-old daughter named Ocean, I use a combination of structured investment tools to provide for her education. These include insurance plans and equity and bond investments spread across asset classes, and a more speculative investment - a twice-weekly $20 Mark Six ticket.

Post