Adding up the ways to save for children’s education

Picking the right strategy for affordable tuition could be vital to a youngster’s chances, writes Chris Davis.

Without a doubt, a good education is a goal the majority of parents have for their children. But the rising cost of education has many parents worried over whether they will be able to afford to send their children to the school or university of their choice.

While any thoughts of university education may seem a long way off when a baby is uttering its first words, professional financial planners are in complete agreement when they say parents should start saving for their children’s education as soon as possible. “The difference between starting early and waiting until a child is seven or eight years old can have a substantial impact on the amount that needs to be saved each month to reach a target figure when a child reaches 18,” says Edwin Cheung, associate director of Convoy Financial Services, who adds that a delayed start could result in either needing to save more to achieve the target figure, or lead to a shortfall.

Rather than being an alarmist, however, Cheung says there are various ways to save for a child’s education without putting too much stress on family life and resources. Taking into account factors including the rising cost of education and inflation, before any investments are made, professional advisers like Cheung suggest parents establish roughly how much money they will need when their child reaches the age of 18. The ultimate goal, says Cheung, is for parents to set a realistic objective and look for ways to achieve it in a manner they feel comfortable with. As with all savings and investment plans, it is advisable to shop around to identify the most suitable options. “For every family, the circumstance will be different,” notes Cheung.

Although financial planners recommend taking a long-term view of achieving the target figure, not all saving or investment plans necessarily need to span the entire duration. For example, a combination of long and shortterm strategies can reap benefits from market cyclical performance. Typically, an endowendowment plan with guarantees will generate three to five per cent over the policy lifespan and is less likely to be affected by market volatility. Meanwhile, investment-linked insurance plans offer the potential for capital appreciation; they do carry a higher element of risk because their strategies usually include investing in securities which can be affected by market fluctuations. Because life is full of uncertainties, Cheung recommends parents choose education investment tools that offer flexibility. For instance, there is the option of increasing contributions or of taking a break from making contributions in the case of unforeseen financial constraints.

No matter what, says Institute of Financial Planners of Hong Kong (IFPHK) chairman, Chris Tse, it is crucial to prepare for the unexpected by ensuring there is a safety net in place to secure a child’s education, in the event of disability, premature death or loss of earnings. “Having protection in place will ensure your children’s education plan will stay on track during health and financial emergencies,” says Tse. For parents who are unsure of the best options, Tse recommends seeking advice from a professional financial planner to help them formulate a comprehensive plan including life and health insurance, retirement and education.