Education Plan

Excerpt from The Star 21st Feb 2009

Saving for your child’s future

By LAALITHA HUNT

Parents should consider various factors when choosing an education policy for children.

THE rising cost of education has made it compelling, if not daunting, for parents to start saving early to ensure their children’s education needs are well taken care of.

Indeed, there are many options in the market that assist parents with young children to keep an eye on their future needs in terms of education.

A recent projection on the cost of tertiary education and its tuition fees and living costs both locally and abroad is an eye opener.

A three-year study in a public university in Britain costs some RM280,000 while studying in a local private university (for foreign university degree courses) for the same period costs over RM70,000 including living expenses.

A good starting point for any savings plan is for parents to estimate how much they need to fork out for their child’s college or university fees 10, 15 or 20 years from now. That way, parents can determine how much needs to be set aside, says Prudential Assurance Malaysia Bhd chief marketing officer Thomas Wong.

“They need to ask themselves certain things – where do they intend to send their children? Local or overseas university? What field of study? For how long? These are important factors that will ultimately influence the expected cost of education,” he says.

However, more often than not, consumers tend not to carry out detailed objective setting right from the start. As a result, they stand the risk of saving less than what may be required, which somewhat defeats the purpose and still results in them scampering for loans at the last moment.

There are websites that host an education calculator tool to help provide an estimate of the future cost of tuition and the amount of savings needed to generate sufficient funds for the child’s tertiary education.

For example, the education calculator in Prudential’s website shows that a three-year study in Australia some 15 years down the road (not including living expenses), would cost about RM320,000, factoring in an education inflation rate of 4.9%.

On the other hand, a three-year study programme at a private college in Malaysia in 15 years’ time could cost only RM70,000, factoring in an education inflation rate of 3%.

Once the expected education costs have been determined, parents should then decide on an amount which they can afford to set aside on a regular basis. “As saving for child’s education fund is a long term commitment, it is therefore crucial for them to be realistic about the amount they could afford to set aside in the long run,” Wong says.

There are several savings tools available for parents to save for their children’s tertiary education. One option is to purchase a child education policy, which is a life insurance plan designed to provide your child with an amount of money when he or she is ready to go to a university or college.

Combining savings and protection elements in one plan, such policy not only helps you grow your child’s education fund, but also provides your child with the necessary insurance coverage – a unique feature not offered by an ordinary savings plan or other investment tools.

“What makes an education plan even more attractive is the ‘continuity’ it offers. Ordinary savings plan stops if something unfortunate happens to the parent who is paying for it. But with the education policy, the premiums can continue to be paid through the payor’s benefit if something unfortunate happens to the parent such as death, total permanent disability or diagnosis of a critical illness,” he says.

The payor’s benefit would ensure the child’s education fund is secured and continues to grow consistently and when the policy matures, the child would then have the financial means to further his or her studies.

One such example is Angela De Cruz, 44 who took a investment-linked policy with a medical card that includes hospitalisation benefits for her eight-year old daughter.

“It is important to ensure medical coverage as a substantial amount of our savings would be used in the event a child falls ill. Besides that, if anything unfortunate were to happen to me, my child would continue to be provided as well,” she says.

A flexible education plan is also one worth considering as it allows parents to maximise their funds and support the choices that suit one’s budget and needs as they change with the circumstances.

For parent’s looking for investment plans, CIMB Bank offers capital protected investment deposit that is long term, yet flexible for top-ups – a good fit for parents who want to invest and save for their children’s education.

CIMB Bank Bhd head of retail banking Peter England says this product encourages a savings-discipline in account holders, where they consistently set aside extra cash into the account, which offers potentially better returns than regular savings accounts and/or fixed deposits.

“From as little as RM50, customers can invest in a capital-protected instrument for tenures of 15, 20, 25 or 30 years that pays out a profit based on the highest value achieved during its tenure. Customers would also have full flexibility to withdraw and invest at any time at prevailing market values,” he says.

England added that besides education loans of up to RM500,000, parents could opt to exercise overdraft (OD) facility on a pledged-fixed deposit (FD) by CIMB.

“With this, parents do not need to uplift the interest bearing FD while enjoying attractive OD rates,” England says.

Besides banking and insurance products, parents could also choose to save in the National Education Savings Scheme (SSPN) account offered by the National Higher Education Corporation (PTPTN).

The SSPN account provides a number of benefits to depositors including eligibility to apply for PTPTN loans with minimum savings of RM20 in their SSPN accounts, tax relief on savings of up to RM3,000 a year, free insurance coverage of up to RM50,000 for depositors who have a minimum deposit of RM1,000, dividends and tax exemption on dividends.