One of the heavy responsibilities of parents would be to see their children through the best education they can afford. This would be one of the main preoccupations in financial planning when children are involved. Planning for funding of tertiary education begins with making a reasonable estimate of the future cost of education with plenty of margin for error. Why? Tertiary education costs tend to be hard to predict, especially if it is overseas. For example, the cost of full fee and board for a degree course in Australia has gone up by over 150% in the last ten years because of inflation, change of policy and currency exchange movement. That is an average of more than 10% per year!

Take a look at the current average cost of education and project that to the year that education costs would begin.

Say in the case of a child who is due to start university in ten years' time. If a university has been identified and the cost of education in that institution or its equivalent has been determined, project that cost ten years forward taking into account inflation and a contingency. So if the current cost of education is RM 160,000 for the duration of the course, using an inflation rate of 5% p.a. would make this cost RM 260,000 in ten years' time. Adding a contingency of 15% would make the projected cost about RM 300,000.

Then work out what would be the monthly savings required to get to the projected sum based on a chosen yield assumption. In the example above, a constant monthly saving of RM 1,500 earning a yield of 7% p.a. will just about cover the projected cost.

While the assumption is there is consistent saving, the safe thing to do is to take out a term assurance that will at least ensure there are sufficient monies for the children's education on the breadwinner's premature death.

It may be good to consider setting aside a trust fund for each child's education if there is no question that monies are to be set aside for the education of a child and shall be untouched until used for the dedicated purpose. This way, the earnings from investment of the fund are not taxable on the parent but on the child who may not be in any taxable bracket.

In real life of course, each of the factors mentioned above are subject to fluctuation. For overseas education, the variables would be the education fees, the cost of living, the currency exchange rate, the yield on investments and the tax thereon. So any form of scholarship, government grant or other forms of education loan or aid will reduce the uncertainty of achieving the education plan.

If in doubt, work out with a qualified financial planner the various alternatives and the best way of funding. There are insurance and investment products that are available as education plans.

Back To Top

Children Education Planning FAQs

Approaches: Wealth Planning > Medical Planning >>

Ready to begin your journey for financial planning? Please sign-up at User Subscription.