How to fund your child's
education
Savings, endowment plans, investments and
CPF Education Scheme are among the options
Magdalen Ng
You don't need a Harvard degree to know that parents place
enormous value on their children's education - and you also don't
need a degree to know that the costs can be eye-watering.
Other than a home and car, the cost of a child's
education - from enrichment classes to tertiary tuition fees - is
likely to be a family's biggest expense.
The sums can be daunting.
Financial advisory Providend estimates that a private
preschool costs $8,000 a year while tuition at a local university
for a non-medical degree comes up to $9,000 annually.
A similar degree in the United States would cost about
$230,000 over four years.
OCBC Bank estimates that a medical degree in Singapore
costs $108,700 compared with $298,608 in a private US
university.
Those costs are likely to increase sharply over the next
20 years - a four-year non-medical degree in a local university
would cost $55,218 and about $700,000 in a private US university -
so it pays to think ahead.
Ms Ng Li Lian, head of mass segment at OCBC Bank, says: "The
cost is indeed hefty and may seem impossible at first glance. The
key is to plan early and start saving as soon as the child is
born.
"Have a plan in place and execute it in phases to build
the funds over time."
Mr Eddy Cheong, head of financial planning at Providend,
adds that when parents start saving earlier, the outlay can be
smaller.
"Also with a longer time horizon, there are wider choices
of funding vehicles to consider," he says.
Mr Daniel Lum, director of product and marketing at Aviva
Singapore, notes that unlike retirement where there is the option
to continue working, a child's education cannot be delayed.
"You should review your strategy regularly and adjust
accordingly to ensure you can meet your goals within the set time
horizon," he adds.
Savings or fixed
deposits
One way is to save a portion of your income in a fixed
deposit with a bank or finance company. It is a low-risk option
that ensures a smooth savings plan over the years.
However, an AXA spokesman notes that the returns on your
investment may be limited, given the low interest rates.
He says: "The choice of this option means that you may
have to put aside a substantial amount monthly or annually to
ensure you have sufficient funds saved for use in 18 years'
time."
Endowment plans
These commonly include insurance protection. There are regular
premium or single premium plans and the option of having a one-time
lump-sum payout or annual cashbacks.
Mr Lee Swee Kiang, chief product officer at Great
Eastern, says: "Endowment plans are very popular for disciplined
savings and there are different policy terms to choose from to
ensure the maturity of the plan coincides with the child entering
university."
For example, Great Eastern's Endowment Classic is a full
pay endowment plan with a lump-sum maturity benefit.
For annual payouts, OCBC Bank offers the School
Protection Plan, where parents pay premiums for six years. It is
designed to help you offset the basic expenses incurred once your
child starts school.
Investments
Providend's Mr Cheong says parents should be open to investment
options because university costs can increase at about 5 per cent
to 6 per cent a year on average, and the overall projected returns
from endowment plans are about 3 per cent to 4 per cent.
He says: "The common investments are shares and unit
trusts. For shares, the safer approach may be to consider blue-chip
and dividend stocks, in which case you will have to be prepared to
take the extreme market volatility."
Unit trusts provide diversification across different
asset classes, sectors and geographic locations.
"If managed well, unit trusts could potentially give
decent returns over the long term, but all investments have
associated risks that you need to understand," adds Mr Cheong.
An AIA spokesman says investment-linked plans (ILP),
products that meet investment and life insurance needs, could be an
option.
"An ILP plays a dual role in allowing customers to grow
their wealth while providing coverage. It also provides the
flexibility in allowing policyholders to adjust their level of
protection depending on their life stage needs," he adds.
CPF Education Scheme
Parents can use up to 40 per cent of their accumulated
Ordinary Account savings, or the remaining balance in the Ordinary
Account after setting aside any amount reserved for housing or
other schemes, whichever is lower, for a child's tertiary
education.
The child will have to repay the amount withdrawn,
including interest, into the payer's Ordinary Account one year
after he graduates or leaves school.
Only students pursuing full- time subsidised courses at
approved local educational institutions are allowed to tap into
this scheme. It cannot be used for students studying overseas.
Child Development
Account
This is a special savings account that parents can open for
children born on or after Aug 17, 2008. The account can be opened
at OCBC or Standard Chartered Bank.
The money is meant for a child's education and health
expenses, and can be used at child-care centres, kindergartens and
special education schools registered with the Ministry of Education
or the Council for Private Education, for instance.
The amount deposited into the account is matched dollar
for dollar by the Government.
The amount given by the Government is capped at $6,000
each for the first and second child, $12,000 each for the third and
fourth, and $18,000 each for the fifth and subsequent children.
When the child is 13 years old, the unused balance will
be transferred into his Post-Secondary Education Account, but
parents can continue to contribute to the account and receive the
matching contributions, subject to the cap. The funds can be used
to pay fees for post-secondary education in Singapore for the child
and his siblings.
The money in the account can also be used for Singdollar
fixed deposits or time deposits offered by OCBC and Standard
Chartered Bank, and are approved by the Ministry of Community
Development, Youth and Sports.
The amount deposited, together with any interest, must be
returned to the Child Development Account upon expiry of the term
of the accounts, or before the Child Development Account is closed,
whichever is earlier.
Little Julian is only 11 months old, but his parents, Ms
Jasmine Sia and Mr Adrian Tan, have already bought an endowment
plan for him. PHOTO COURTESY OF JASMINE SIA
GETTING A LEG UP EARLY
Teacher Jasmine Sia has started saving for her child's education
even though he is only 11 months old.
The 27-year old first time mother, who works part-time,
is saving for Julian's pre-school education.
The private centre that she wants to send Julian to costs
about $1,200 a month, but she is entitled to as a working mother
subsidy of $300 per month.
Ms Sia and her husband, Mr Adrian Tan, 36, also a civil
servant, are making sure that they start planning for Julian's
tertiary education early.
On top of medical and life insurance, the couple has
purchased an endowment plan which will mature when Julian is
21.
The money from the endowment plan will be sufficient for
his tuition at a local university.
Ms Sia said:"We'll start with planning for a local
education first. Maybe in the future, we will buy more endowment
plans, or look into other sources of funding if Julian plans to
study overseas."
Magdalen Ng
Current costs
• Annual cost at a private
preschool today: about $8,000 per year
• Tuition at a local
university for a non-medical degree: about $9,000 a year
• A non-medical degree in the
United States: about $230,000 over four years
Estimated costs 20 years from
now
• A four-year non-medical
degree in a local university would cost $55,218
• A four-year non-medical
degree in a private university in the United States: about
$700,000
Sources: Providend OCBC Bank
invest, The Sunday Times, August 12, 2012, Pg
29-30