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Saving for higher education starts at childbirth

HSBC's research showed that over one in five parents, who said that they had not saved enough for their child's university education, had not done so because they had not given it enough thought, or had dismissed it as being too early to start.

It is a matter of great pride for any parent to see their child on their university's graduation day. Many dream of the day when their child will don the graduation gown, and be ready to take their first steps into the workforce.
However, parents in the UAE who fail to save early on for their child's university education, will ultimately see that dream unfulfilled. Although parents in the UAE clearly have high educational aspirations and many want high-profile careers for their children, these goals often require years of financial planning. HSBC's 'Value of Education 2015: Learning for Life' report recently revealed that parents are not saving as much as they think they are for their child's education.
"We see that as early as the pre-primary school, more than four in five parents have thought about what they would like their children to be when they grow up. However, the requirements needed to support these aspirations are being left till much later, even though parents recognise the value of university education," said Khalid Elgibali, head of retail banking and wealth management, UAE and Mena, HSBC Bank Middle East.
"With an increasingly competitive marketplace, tertiary education will only become increasingly important, but parents in the UAE need to start looking at this more proactively if they are going to give their children the foundation they need to succeed," Elgibali warned.

HSBC's research showed that over one in five parents, who said that they had not saved enough for their child's university education, had not done so because they had not given it enough thought, or had dismissed it as being too early to start. More worryingly, the report also said that while two-thirds of parents with pre-primary school children think they will save enough to cover future university costs, only 40 per cent of those with a child at university actually do.
Sadia Sharif, a school teacher with two sons studying at the Westminster school, said that she is aware of the need to save early for a university education. She explained that she has already started saving for her eldest son, who is in the ninth grade, but that it is difficult to save with the high cost of living in the UAE. "School fees have been increased and house rents are on the rise, so it is very difficult to save regularly with all the added expenses," she said.
While it is clear that parents, who fail to save enough for a university education, end up doing so because they didn't start saving early, there are several other factors that contribute to the predicament. These include failing to seek expert advice to implement a sustainable savings plan; not taking inflation into account when saving; relying too much on day-to-day income; not calculating the added expenses of sending a child abroad; and relying too much on bank loans.
With the increasing complexity in global markets and a middle class population boom in emerging economies driving the race for premium careers worldwide, it is no secret that new generations of university graduates will need to become increasingly qualified academically in order to stand out from the competition. HSBC found that 92 per cent of parents see an undergraduate degree as essential, with 80 per cent of parents also viewing a postgraduate degree as essential for their children to achieve their life goals.

"In today's world, a Master's degree is vital if you want to do well. As the competition for jobs among new graduates is continually increasing, you'll be left behind if you only do an undergraduate degree," said Sanjeev Verma, CEO of Intelligent Partners.
"In terms of preparing for this stage of life from a financial perspective, it is possible for parents to save for both degrees for their children as there is a range of options available at different prices. It all comes down to saving early and regularly. The same concept applies to planning for which university and degree your child will do," he stressed.
HSBC's research shows that saving regularly and investing early produces results. If an individual, starting at age 35, invests $1,250 a month for 25 years, their final pot can add up to over $855,000, with premiums totalling $375,000. However, if an individual starts saving at age 45, and puts aside the same amount each month for 15 years, their final pot will be less than $360,000, with premiums totalling $225,000.
It especially pays to be prepared if the parents are interested in sending their children overseas for their university education. Verma informed that for an undergraduate degree in the US, parents will need to put approximately $250,000 aside and this includes tuition, as well as, ancillary expenses such as travel. For a UK degree, parents need to set aside approximately £90,000 for the three years of an undergraduate programme.
In terms of graduate studies, a Masters/MBA in the US would be for two years and cost for anything in between $40,000 and $75,000 per year, while in the UK, a Master's programme would run for a year and cost up to £30,000. Parents should also ensure they keep a separate pot aside to cover any unexpected expenses that may arise, he cautioned.
"While we have seen parents coping with these costs for their first child, we do notice that those who leave off planning till very late end up not being prepared for their second child. This once again is why it's essential for parents to be well prepared and plan ahead for this phase of life," Verma noted.
- rohma@khaleejtimes.com