How Are You Funding Your Child’s Education?
“Education is a human right with immense power to transform. On its foundation rests
the cornerstones of freedom, democracy and sustainable human development.” - Kofi
As parents and guardians, it is our greatest desire to give our children and wards the
best possible start in life. The most powerful way to secure a child’s future is to educate
them as this opens doors to many opportunities.
For the vast majority of parents, funding your children’s education ranks as one of the
largest expenses you will ever face. By some estimates, educational costs increase by
between 10% and 15% each year. If sound investments are not made early, covering
such costs later can jeopardize your financial situation. It must thus be carefully planned
and prepared for.
Time matters; paying school fees on an ad-hoc basis without any advance planning will
cause huge financial strain unless you have significant income and savings. 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.
What are your options? Once you have an idea of the type of educational future you
would like for your child, don't 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.
In order to accumulate enough money to finance your child’s education, you need to not
only start early, but to invest fairly aggressively. Where you have a very long time frame,
you can afford to take more risk.
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, ten years and more, then it is well worth considering investing directly in a
professionally managed portfolio of blue chip stocks or an equity mutual fund.
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 child’s age, your risk tolerance, and ultimate
As your child gets closer to starting college, say 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 for school fees, you may be forced to sell stocks at a
It makes sense to begin to shift your money into more conservative investments
reducing your exposure to market volatility. The shift may be to lower-risk bonds and
money market accounts that 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 in value, 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. Be cautious about going into debt to fund
your child’s education; interest expenses significantly increase the education costs;
interest rates are comparable to other borrowing options. Consider this option only
where you have the capacity to service the loan comfortably, because if you default, you
could lose the property.
Scholarships and grants are a source of funding that parents often overlook. From your
child’s earliest years you ought to have identified a unique skill or talent in a particular
area; technology, music, drama, sports or they may be exceptionally gifted academically
making them eligible to compete for a scholarship or grant. Identify and nurture their
talent but at the same time, don't push too hard as you might be demanding a
performance level beyond your child’s ability; this can lead to anxiety, or even
Scholarships and grants may have strings attached, such as maintaining a certain
standard of performance or being tied to a particular field of study. Estimates show that
scholarships and grants often cover less than half of all costs so you must still come up
with the difference.
Have you considered an educational savings plan? Leading insurance companies in
Nigeria offer Educational Savings Plans that help parents avoid the sudden 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
An Educational Trust is another option; it 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. The
allure of this plan is that by paying today you lock in costs and don’t have to worry about
not being able to afford rising costs in the future. A disadvantage, however, is that by
tying down your funds, you forfeit the opportunity to invest the money yourself which is
in fact what the school is going to do with it.
Don’t neglect your retirement plans. Whilst your child’s education is one of your greatest
priorities, do not jeopardize your own financial security. Maintaining your own financial
independence is key to your children's stability as well as yours. Try not to be tempted
to withdraw money from your retirement savings account other than for your retirement.
Encourage your children to earn. For many families, it is the norm that children
contribute towards their own education costs with part time jobs. 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. By encouraging your children to
contribute to at least a part of their expenses, they will be gaining financial
With disciplined, regular investing spread over many years, you should be able to
accumulate a significant sum in your child's education fund. Review your portfolio
periodically; and certainly at least once a year to ensure that it still meets with your
As with any other investment goal, time is of the utmost importance; the sooner you
start, the better. The key is to start early, contribute regularly, and invest wisely. Do
remember that all investing comes with a degree of risk; it is thus important to seek
professional advice before you invest.