Parents advised to start saving early to fund children's education
Funding your child's education means starting to invest early, as inflation will erode the value of savings if the funds are left idle, financial advisers say.
For a rough gauge of future earnings, Sonia Cheng Mee-lin, a senior business manager at Prudential Assurance, says parents can look to salary levels in the first five years of their employment, which generally reflects the trend in the next 30 years.
"It's rare that this income will jump significantly unless there are some breakthroughs," Cheng says. "The annual salary increment rises may not even keep pace with inflation, so you need some investment or saving plans for the future, and you need to take advantage of the power of compound interest."
But first set a goal. Whether you plan to send your child to a local or international school or a boarding school abroad determines your investment strategy, Cheng says. For example, a parent might pay HK$5,000 into an education fund each month from the time the child is born. Once the accrued total reaches a certain figure, the parent may be able to stop paying and let the sum grow until the child goes to university.
But the growth of the chosen financial vehicles often depends on economic ebbs and flows, so parents should be cautious and avoid putting all their eggs in one basket.
A senior investment consultant at Charles Schwab, Choi Man-yiu, says his clients generally have three main objectives for investing: retirement, housing and their children's education.
His suggestion for the emphasis of their investments could be a bit surprising: "The generation today won't think about looking after their parents as much as we did. So our priority for investing into the future should be for our own retirement.
"As parents, we need not worry so much about whether the children can support themselves. They should be free to live their own lives and be proud of themselves."
Nevertheless, he says he does invest in some financial schemes for his two teenage children, although he keeps it a secret from them.
"I save the money for emergencies for the times when they need some support, but I won't tell them how much I have," Choi says. "Medical insurance is our priority. As for higher education, they can apply for loans and pay back when they start earning money."