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
IMO, if you have the discipline and interest to read up, it would be better to self-invest for your child's University fees instead of an Endowment plan.
Bear in mind that such plans are usually very long term plans, which allows one to actually ride out most market fluctuations.
Most people aren't financially savvy which is why those singapore insurance products which also offer savings are usually chosen. Every month just pay premium. Whereas if you're good with figures, with an eye for investment, it might be better to invest.