The COVID-19 pandemic has created huge challenges for parents, their
children, schools and their teachers. There is hardly anyone whose income has
not been affected by the current situation with so many suffering a significant
drop in income and much uncertainty ahead. The stakeholders each face different
challenges that impact all.
Many school proprietors
worry about the impact of parents being forced to withdraw their children. Many
private schools are providing remote teaching and support programmes for their pupils,
trying to ensure a quality continuation of their pupils’ education. Many have
had to keep their facilities open albeit with skeletal staff to maintain and
secure the premises at significant cost.
As incomes drop and jobs continue
to be challenged, families naturally expect some reduction in fees. On the
other hand, schools are keen to retain staff to ensure that the institution
remains a well-resourced and thriving community that can continue seamlessly once
the crisis is over.
But no one knows when
things will return to any semblance of normalcy and this essential community
has been hit very hard. Schools must thus strike a balance between supporting
their parents and securing their own futures.
The big question for parents
is, how will I fund my child’s education? For the vast majority of parents, this ranks as one of
the largest expenses you will ever face with cost increases of between 10 to 15
per cent each year.
The key to funding
education is to start early so that you can benefit from a key ingredient of
investing; time. Time gives your money an opportunity to gain from the power of
compounding. Start saving towards your child’s education once you plan to have
them; even before they are born. Time matters.
Paying school fees on an ad-hoc
basis without any advance planning will cause huge financial strain, unless you
already have significant income and savings. An early start protects you from
the shock of a pandemic or other catastrophe. A delayed start not only yields a much weaker
result but can also jeopardise other financial goals such as your home
ownership or retirement goals.
When your child is young, you have
the benefit of time to select investments that offer the benefits of
compounding and the prospect of higher returns that have the potential to
outpace inflation and increases in education costs.
If you only start investing
for your child's education in your 40s, you are likely to fall short of the
required amount and be forced to dip into retirement savings to fill the gap.
This is a precarious situation that comes with huge risk. You are responsible
for your own retirement and cannot afford to assume that your children will be
willing and able to fund your retirement in the comfort that you expect or indeed
An early start in educational planning and funding
will not be enough. How to invest is a critical question. What are your options? Once you have
an idea of the type of educational future you would like for your child, do not
feel pressured to send your child to the most expensive school; it is not
necessarily the best for your child. The most suitable choice largely depends
on your own unique family circumstances and goals. This will be determined by
factors such as your income and savings, your child’s age and ability, how soon
you will need the funds, and the amount you wish to save.
Here are some options:
The yields on short-term money market
instruments even though the returns are assured, cannot meet long-term goals.
Equities come with greater risk, but have been shown to produce far greater
long-term results. Experts suggest that a high level of equity is necessary to
counter the high rate of education inflation as well as the effects of any
Be careful and be conscious
of your risk tolerance and time horizon. If you have a time horizon of less
than five years, you will have to rely primarily on fixed income instruments, even
though they are likely to offer a lower rate of return. They offer guaranteed
returns and safety of capital. In the short term, these are important factors
Think long term. The stock market
is generally regarded as a strong option for long-term investing; stocks have
historically outperformed other investments over the long term. In the
short-term, they can be volatile. If your plan is to put money away for your
child for say, 10 years and more, then it is well worth considering investing
directly in a professionally managed portfolio of blue chip stocks or an equity
Mutual funds are pooled investments
in a wide range of shares. They offer diversification and are easy to liquidate
when you need cash. Your fund choice will typically depend on factors such as your
child’s age, your risk tolerance, and your ultimate financial goals.
As your child gets closer to
starting college, two to three years before they are due to start, the less
risk you can afford to take because preservation of capital takes precedence
over earning a high rate of return. If you leave the money in the stock market
until just before you need it for school fees, you may be forced to sell stocks
at a loss. It makes sense to begin to shift your money into more conservative investments
that reduce your exposure to market volatility; lower-risk bonds and money
market accounts present a safer option.
Carefully considered real estate
investing is an outstanding asset class that over time provides three main
sources of funding: you can sell the property, earn rental income to pay school
fees and other costs, or borrow against a property. If you own property that
has appreciated, you may be eligible to borrow a percentage of your equity,
which is the difference between the market value of your property and the
outstanding mortgage loan.
Avoid going into debt to fund your
child’s education unless there is no other option, if it is interest free or where
you have the capacity to service the loan comfortably.
Once your portfolio is in
place, review it at least once a year to check whether you are still on target
to meet your goals. Remember, it is not just about tuition fees, it is also
about living and travel expenses. Periodically, one must check whether your
portfolio is on track to meet the goal.
You cannot afford to let a downturn in the stock market jeopardise your
child's college education.
Do not overlook the possibilities
for scholarships and grants as a source of funding particularly if your child
is able to attract such opportunities. From their earliest years, you ought to
have identified in them, a unique skill or talent in a particular area –
technology, music, drama, sports, or they may be exceptionally gifted
academically, thereby making them eligible to compete for a scholarship or a grant.
Have you considered an educational
savings plan? Leading insurance companies in Nigeria offer educational plans
that can help parents avoid the sudden and huge expenses that come from
inadequate planning. An education protection plan ensures the continuation of a
child’s education should their sponsor become critically ill, disabled or die.
An educational trust is simply a
trust established with the sole purpose of providing funding for education. At
the appropriate time, distributions or withdrawals can be made from the trust
to fund the education of beneficiaries.
Some private schools allow you to pre-pay
school fees several years in advance. This is tempting, as you lock in costs
and do not have to worry about the rising costs in the future. By tying down
your capital, you forfeit the opportunity to find more productive outlets for
It is important to teach economic
responsibility at a young age and such income can supplement whatever you are
able to provide for their personal expenses. Encourage your children to earn
and contribute at least a part of their expenses. This will make them gain
with any other investment goals, time is of the utmost importance. The sooner
you start the better. The key is to start early, contribute regularly, and
invest wisely. Education is one of the greatest legacies you can leave your
child. Make planning for it a priority.