Do not underestimate the cost of private schooling

18 July 2018: Affluent individuals and families who prefer to send their kids to private schools in the country should not underestimate the importance of planning ahead to cover school fees.

“For an average household with two kids in school, annual tuition fees, including boarding could easily mount up to R540 000, considering that the most expensive private school in the country currently costs over R270 000 a year per pupil,” says Eric Enslin, CEO of FNB Private Wealth and RMB Private Bank.

He says some families often overlook the fact that school fees could actually be a five to 13-year commitment, which can significantly place pressure on household cash flow if not properly planned for.

Furthermore, the fees become more expensive every year as they often increase beyond the annual inflation rate.

Enslin advises families to think long-term and start making provision for private schooling as early as possible.

“Even if the family does have some cash available, it would be viable to invest it and use the returns to lower the overall cost of private schooling,” says Enslin.

Regardless of the age of the kids, there are a variety of investment vehicles which could suite families:

  • Money maximiser account  enables you to have immediate access to your funds, while earning a money market related rate. You can also make additional deposits at any time.
  •  Inflation linked deposits – offer you an investment where your returns are linked to inflation, ensuring your investment keeps up with the rising cost of living.
  • Investment property  you have an option to invest in property which is likely to appreciate in value while enabling you to use rental income to fund tuition fees on a monthly basis.
  • Equities – investing in the stock market or investment funds that offer consistent growth over the long-term is also an option for parents.
  • FNB Horizon Series – has been designed to make it exceptionally simple for customers to choose unit trust funds that best suit their needs. It takes the complexity out of investing and offers investors superior fund solutions, with exposure to inflation-beating returns over different time horizons

The philosophy behind these funds is to target the most optimal asset allocation for a specific time horizon. This means that you get optimal returns for your specified time horizon.

“There isn’t a one size fits all approach when deciding on the best vehicle to save for private school fees as every family’s financial affairs differ. It is therefore, essential to consult your banks relationship manager or advisor to identify the best investment plan, which takes into account a variety of factors impacting the family.

Making provision for educational expenses can give families peace of mind knowing that they won’t find themselves in a situation where they have to make financial sacrifices in order to give their kids the best education possible,” concludes Enslin.