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KT for good: Plan well for your kids' future

While most parents aspire for the best for their children, a few plan it properly.

The cost of education, or education inflation as we call it, is increasing every year globally. In the UAE, it is about four per cent annually, and in the US, UK and Europe, costs go up by almost 10 per cent every year. The reason behind mentioning these numbers first is to make parents realise the need to start saving and invest for their child's university education, if they plan to fund it.
It's a mistake that Shirley Soans, manager at an international firm, regrets making.
She is a mother of two kids who are in their early 20s. "When the time came to fund the college education of the older one, I swiped my credit card, took loans and basically over-leveraged myself. By the time it was the younger one's turn to head to college, I was weighed down by a huge pile of debt and couldn't offer him any support. He is 21 and hasn't been able to take college education," she says.
Now, every time Sherly visits a parent, her first word of advice is to have an education plan.
While most parents aspire for the best for their children, a few plan it properly. On an average, tuition fee for an undergraduate course in the UAE is over Dh53,000. A postgraduate course, on the other hand, is over Dh65,000. "It's important to start early. Longer the term, lower will be the monthly saving commitment, and better will be the growth of money," says Paul Callaghan, financial adviser with Arlo Wealth.
College Board, a student support organisation, estimates that students require an annual budget of $46,950 to cover fee, room and board, transport and other living expenses when studying at a private four-year college in the US. That's a staggering total of $187,800 for a four-year course. The estimates are similar for the UK, too.
The first step is to identify where would you like your child to study. Then arrive at an estimated amount you would need by that time. "Given the rising cost of education, it is roughly estimated that at least $2,000 needs to be saved every year till the child reaches 18 years of age. There should be $36,000 in the child's educational savings by the age of 18. This requires a lot of planning," says Vijay Valecha, chief investment officer, Century Financial.
Callaghan, however, suggests starting small first and testing your stamina for investments. "An education plan is a good way to save. However, I would suggest starting small and staying committed. You can increase the premium as you go along."
Another way is to invest monthly in equity-linked systematic investment plans. Equities over a long term have been a great wealth creator. If you are taking the DIY approach, the key is to review your plan every few years. "If the kid is less than five years, they can start with a long-term investment plan and while nearing the funding period, they can shift to a short-term guaranteed profit plan that is secured. Parents must review their investment plans at least once a year," advices Shiv Gupta, co-founder, MyMoneySouq.  
If you are not sure of how to start, consulting a financial planner is always the right thing to do. Time is of essence. If you start investing when your kid is one, you would have to save as little as Dh610 per month for 17 years to build savings of over a Dh104,000. If you start when he/she turns 13, the monthly commitment goes up to Dh1,120. Start small, but start now.
suneeti@khaleejtimes.com