Friday, December 17, 2010

Financial planning for children's education

While children are a tremendous joy, they are a big responsibility. Financial planning can help manage the costs, from childhood through university.

For most young couples with little children, events such as university seem far into the future. It's easy to believe there is plenty of time to save for university - or even the cost of private schools. And with so many other expenses to cover, it's easy to delay getting started on planning and savings.

The reality is, time flies, and before you know it the expense is upon you. The sooner you start to invest, plan and save, the better your chances are of enjoying a pain-free (from a financial perspective) experience when your children enter university.

And, you may be pleasantly surprised at how little you need to put aside - if you start early.

Take for example one simple comparison: Opening an education investment instrument and contributing just RM514 per month starting when your child is two can reap returns as high as RM160,195 by the time he or she is 18 and ready to enter university. Placing that same amount into a savings account over the same period of time would yield just RM126,929.

And, depending on the particular tax codes in a country, many of these education investment tools can benefit from low or no tax treatment on the capital gains.

For most people, major life events such as marriage or having children prompt them to start thinking more seriously about planning for the future. These happy events represent a tremendous opportunity to begin taking positive steps to ensure you can maintain your lifestyle while also saving for the future.

In the most recent 2010 AXA Retirement Scope survey, when asked "what events in your life triggered or will trigger you to start saving for your retirement?," having children consistently ranked as number one or number two on the list.

Among respondents from China, 45 per cent named having children as a key factor in starting to plan, the same as India. Among Hong Kongers, 52 per cent cited it as the main trigger, while in Malaysia it was 55 per cent.

Things to consider can include how much will you need for your children's education - especially if considering sending them overseas for part of their education or even university.

These can be expensive propositions, but manageable with planning - and often well worth the additional investment in terms of your children's future opportunities.

For many people - especially those who married and had children later in life - the need to pay for university expenses may come close to the time parents are approaching retirement. Having worked work hard all their lives and planned for a comfortable retirement, will the high cost of higher education come as an unpleasant surprise?

Not if while you are planning and investing for retirement, you are also saving for your children's education - and taking into consideration the rising cost of education.

These days, you cannot estimate what your children's education will cost by recalling what you paid for yours. Especially with governments facing increasing fiscal challenges, some of the government subsidies or loans that were once available may not be in future.

Professional planners can help you create the right mix of investment options, and offer guidance on how much is enough - or will be enough once your children reach university age.

Read more: Financial planning for children's education

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