Tertiary education, something many regard as a right, has been a hot topic in South Africa over the past couple of years. Whether your children will be able to study at a reputable public university for free by the time they reach 18 is anyone’s guess. Banking on this, however, is probably not a wise way to plan for your children’s educational needs.
Putting a little bit of money away every month until your child is of age may result in a significant saving which can be used to settle, or greatly soften, the blow of tertiary education costs.
Savings accounts have many cons
Most people’s chosen savings vehicle is, by default, a bank savings account. However, what many people fail to realize is that bank savings accounts more often result in loss over the long-term. But bank savings accounts pay interest, don’t they? How can you say I’m losing money then?
Well, earning interest is great, but it has an arch-enemy: inflation. Most of the time, the interest on bank savings accounts fails to beat the inflation rate.
Think about it: suppose you could buy a T-shirt for R100 today, or put it away for a year at 5.5% interest. A year later, you will have R105.50. But let’s suppose inflation was 7%, causing the T-shirt to now cost R107. What you could buy a year ago with your R100, you cannot afford now, despite the fact that you earned interest.
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The lesson here is that if you want to save your money in an account that is going to generate real returns for you in the long run. This way, your money has truly grown by the time you need to pay for your child’s education. As such, you need to consider investments other than bank savings accounts.
The differences can be astronomically high. For example, if you invested R1000 a month from the day of your child’s birth until their 18th birthday at 5.5% annual interest, you would have R364 228 at the end of the day.
However, if you had used the time on your hands to invest in a more aggressive unit trust fund, you could end up with R2.5 million (this is based on the past returns of a particular South African unit trust fund and is in no way a guarantee of future returns)!
Start investing now
If you think it’s time to start investing towards your own or your children’s future, then don’t hesitate. The more time you lose, the more money you lose too.
Send an email to finplan@insurancebusters.co.za, and one of the financial planners at Insurance Busters would be glad to assist you in finding the best investment to meet your goals and expectations.
