“An investment in education always pays the highest return”
RECENTLY I came across an article on how the pandemic has changed education forever. As an educator myself, I think the teaching and learning mechanisms are going through a massive change and the pandemic has structurally transformed our teaching and learning into the online method.
Whatever is said and done, when it comes to our children’s education, we may still think that traditional physical learning method is still the best way.
I recall back to what moulded me as an individual today, which is mostly from my university life – partly the classroom education, but more than that is being independent, communicating (with seniors, juniors, fellow course mates and roommates), presentation skills, public speaking, and leadership skills. These life skills were developed because of my university life.
Today, other than formal education, we want our children to be well equipped and competent with all the relevant informal skills. To attain this, I think we still need the traditional physical learning method. But are parents prepared for the financial commitment from tertiary education?
A basic degree costs you around RM70,000 to RM100,000 and in 20 years, with inflation, the cost is going to hike up, ranging from RM186,000 to RM265,000. That’s only the tuition fee excluding accommodation, food, bills and others, which will definitely cost much higher. Now let’s discuss how we need to plan strategically for our children’s education.
Time horizon
Your child’s age will be the most important factor in determining a time horizon. Age helps to estimate how much time we must allow an investment to naturally grow. Once we know the time horizon, it will be easy to start the plan.
Time horizon enables us to outline future opportunities and suitability of an investment. The earlier we start planning for our children, the better results we can achieve.
Imagine when we start planning when they are at age 15, the stress will be much higher to achieve the needed fund and this can lead to wrong investment decisions. Start when they are young, start early.
Estimate the cost of education
After determining the time horizon, next we need to determine the total cost of education for the child. This depends on various factors. Some question to ask to yourself; are they going to have a global exposure in their education or will they be studying in our local private universities or local government universities.
Once you determine these factors, you can very quickly identify the cost of the education. Don’t forget to add at least five per cent inflation rate (global and private universities) to estimate the cost of education.
Risk, return and asset allocation
After determining the time horizon an estimating the cost of education, you need to understand the risk and return before planning on your investment strategy. There is no gain without pain in any investment and there are always some risks involved. Understanding the relationship between risk and return is very important in developing your children’s education fund.
Investment instruments like stock, bond, unit trust, property and others have their own risks and returns. Understanding risk and return will help us develop a well-diversified portfolio. A well-planned asset allocation scales up your portfolio returns exponentially.
It can also act as a shield to protect its value during uncertain economic conditions and market volatility. If you have difficulty to understand the technicality of investment, you could engage an independent licensed financial planner or advisor to assist you.
Insure yourself
In life, nothing is certain except death. Have you considered what will happen to your dream of giving your child the best possible education, in case you have an untimely death?
One of the biggest potential setbacks to a child’s education is the demise of the breadwinner in the family and the lack of insurance.
In a good education fund plan, you should make sure you have enough insurance, so your child can obtain sufficient funds, even in your absence.
In my opinion, term insurance would be a good tool to protect yourself, as it has a lower cost and comes with a higher coverage.
Don’t get into the wrong trap when purchasing insurance products as sometimes, this can be a downfall in achieving sufficient funds for your children’s education. Always seek professional, unbiased advice before making any financial decisions.
The mystery of what your children will be and how you can affect that outcome is what parenting is all about.
Give all you can through proper planning, build their confidence, motivate them to achieve their dreams and most importantly enjoy the parenthood journey.
Gunaseelan Kannan, CFP, a Financial Adviser Representative by Bank Negara Malaysia and a licensed financial planner by Securities Commission (CMSRL/B4198/2013), is currently pursuing his PhD research on financial planning and financial technology. He also lectures on accounting, finance and business fields in Asia Pacific University of Technology and Innovation (APU). He is the Winner of Malaysian Financial Planner of the Year 2020, from Financial Planning Association of Malaysia. He can be reached at [email protected]
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