Bringing up a child in Singapore can be challenging even with both parents working. With the rising cost of living and the importance of having higher qualifications to secure well-paying jobs, many parents are placing their children’s education as one of their top priorities.
A common question in the minds of most Singaporean parents is whether they are able to pay for their children’s tertiary education without taking up an education loan.
Such a loan may have a significant financial impact for a fresh grad and can be a cause of stress for a young working adult. With proper family financial planning, it is possible to save enough for a tertiary education without the need to apply for an education loan.
How Much Do You Need?
Before we address how to save for our children’s education fund, let’s start with how much we should be saving.
The tuition fees (covering Semesters 1 and 2 of the Academic Year 2022/2023) of a Design and Engineering undergraduate course for Singaporeans in National University of Singapore is $8,250 in Singapore Dollars.
Without taking the future annual increment over the next 4 years into consideration, the total amount for a four-year undergraduate course would come out to be $33,000!
A more specialised bachelor’s degree will go way higher than this. This figure is already almost 3 times higher than what it was a decade ago. And it is expected to get much higher in another 10 years due to inflation. Furthermore, the above amount excludes other expenses, such as food, commute, allowance etc.
We can expect the overall fees of a local university education to get higher with rising demand and inflation. The cost will be even higher if we want to send our children overseas for their university education.
Now that we have an idea of the amount we need to accumulate, it is time for us to look into the different ways we can build that fund. It is important for us as parents to start planning and saving early for our children. The following are some ways we can consider.
1. Open A Joint Saving Account With Our Child’s Name
All banks in Singapore allow us to open a joint saving account with our child’s name. By breaking down the monthly saving commitment, we can deposit money into the account over time to build up enough fund to pay for the tertiary course.
The major disadvantage of this method is that the effects of inflation will erode the returns of our savings. Therefore, we may have to save more cash in order to combat the inflation rate.
2. Purchase An Endowment Policy
Every insurance company has endowment policies catered to this concern that parents have. While the returns averaged 3.5% pa, it is still able to counter the effects of inflation on our savings for our children.
Since this financial product is an insurance plan, there will be some level of insurance coverage as we save.
However, it is important that we do not have too many protection elements (i.e. riders) to weigh down the returns. Else the rate of returns will be no different from our bank saving accounts.
3. Have A Regular Investment Plan
With a long time horizon and utilizing the Dollar Cost Averaging methodology, it is worthwhile to consider using investment plans to save for our children’s education needs. By leveraging on this method, we are taking advantage of the volatility of long-term investments to give us higher returns than a lump sum investment.
Moreover, this also helps us to manage the risks of trying to time the market. It would be best to consider monthly or quarterly investments rather than an annual or semi-annual investment.
The higher the frequency, the lower the risk we are exposed to since there will be more opportunities to take advantage of the volatility of the underlying investment assets in any given year.
Because this method helps us not to market-time our investment, it is better we select high potential assets (e.g. equities), rather than “stable” assets (e.g. bonds).
4. Invest Lump Sum Into A Diversified Portfolio
If regular investment plans are not suitable for you, you can consider investing a lump sum into a diversified portfolio. A diversified portfolio should have well-spread allocations into various asset classes (e.g. equities, bonds, cash etc).
Regular rebalancing of this portfolio has to be done (minimum: every 6 months) so that the portfolio’s risk profile will continue to remain in line with the geopolitical and economic environment in order to maximise the potential annualised returns while minimising the potential imminent risks to the investment assets.
5. Top-up CPF OA Savings
Since our CPF OA savings is generating a guaranteed returns (i.e. 3.5%pa for the first $20,000 and 2.5%pa for the rest), we can consider doing annual top-ups to maximise the opportunity to earn higher returns from our cash savings.
When the time comes for our children to go for their tertiary education, we can apply for the CPF Education Loan Scheme to release some of our CPF OA savings for them to pay for their courses.
Planning and saving for our children’s education has become an important responsibility for most Singaporean parents. Thus, we cannot afford to take it lightly as we need time to save and invest our money in order to have enough funds to put our children through tertiary education.