Parents with young children may feel like university or college is a long way off. In the daily battle to get the kids packed up and on the school bus, the idea of their future academic ambitions (and associated financial demands) can seem like a dot on the horizon.
But with fees at top US universities reaching as much as USD 50,000 (around RMB 305,000) a year, parents who delay or ignore the issue altogether do so at their own (and more crucially, their children’s) peril.
Higher Education Costs
If you are planning for your kids to study abroad, you may need to pay significantly higher fees than the country’s citizens. Even if you plan for your children to return to your home country, you cannot be certain that the costs you anticipate will remain the same.
Taking inflation into account, the price of education has proven fickle. In 2012 for instance, the maximum yearly tuition fees that British higher education institutions could charge domestic students jumped from GBP 3,290 (around RMB 33,000) to GDP 9,000 (around RMB 89,000) – an increase of 174 percent.
Next, factor in living costs (which may need to include rent in an expensive major city) and you may find yourself facing a huge yearly bill. In some countries, low-interest loans are available to students and plenty of institutions offer scholarships, but it is very difficult to know what assistance will be available to your child when it comes time to apply.
Put simply, enrolling your kids in university is an expensive endeavor and it is hard to predict how much you will need to put away. But despite these uncertainties, one thing is for sure: if you save too little or start too late, you risk having to compromise on the standard of the institution that you are able to afford.
When to Start and How Much to Save
There is no simple answer to the question of when to start saving, according to Mark Matlaszek, a senior financial advisor at BlueStar AMG, an asset management company catering to the expat market in Asia. While he sees plenty of families with young children looking to begin education planning, Matlaszek also encounters parents-to-be preparing for the future.
“It can be too late to start, but it’s never too early,” he says. “Let’s say you’ve got a child on the way and you’ve got to set aside USD 200,000 for their higher education [over]an 18- or 19-year window. To accumulate that sort of money [in]this timeframe is very affordable and very possible. If you have a shorter window then it becomes incredibly expensive and difficult.”
The next obvious question for parents is “How much do I need to save?” Again, there is no definitive answer and it will depend on what type of institution and course you are aiming for. Some may want more flexibility to cover the larger financial burden of top universities or programs like medicine and architecture. Each family’s circumstances will be different, but your financial planning will always revolve around three main factors – your existing assets, the income available for regular contributions, and the amount of time you have left before your child enters higher education.
Some parents may choose to manage their own savings, assets, and investments. This could be in the form of safe but low-yield options such as fixed-interest accounts, or other traditionally stable investments such as property. Others look to higher-risk options such as the equity markets (stocks and shares).
Your ability to absorb potential losses is another crucial factor in decision-making. But this resilience to risk is likely to change over the course of the saving period. Choosing an investment or saving plan that allows you to adjust the level of exposure to risk can help maximize your returns while ensuring that your money remains relatively safe in the long term, suggests Matlaszek.
“If you have a [long]time frame, you should perhaps aim to be a little bit more risky in the early years – equity investments, for example. That means you have plenty of time for recovery and to take advantage of market volatility,” he advises. “As the years go by and you get closer to reaching your goal, you should be shifting to a much lower-risk portfolio because any gains that you’ve made or capital that you’ve accumulated need to be protected against negative market movements.”
Plans and Packages
For parents who do not know their bonds from their bear markets, fear not – many people turn to structured plans for long-term savings. Even those who are fluent in finance may benefit from the ease of a managed plan, as well as the ability to spread their risk more widely.
The type of arrangement that Matlaszek often recommends for education planning is fixed-term (in other words, designed to reach maturity when you need to access the money) and can be paid on a monthly, quarterly, half-yearly, or yearly basis. Your money will be spread across funds that comprise a mixture of stocks, shares, bonds, commodities, and currencies. With the assistance of a financial advisor, you can vary the level of risk to suit your circumstances and be confident that someone is keeping a close eye on the markets where you keep your capital.
Many families also find that this type of structured plan helps them be disciplined when preparing for the future. This was the experience of UK-born Paula Zhou, head of schools at The Children’s House International Montessori Kindergarten. Along with her Chinese husband Weihua, she began saving for 8-year-old Eiriana and 3-year-old Liam at the beginning of 2012.
“Living in Beijing can often see life run away with us – exotic holidays and Michelin Star restaurants [are]all on our doorsteps,” she explains. “The salaries that we earn might seem reasonable, but without a scheduled, routine saving plan it was really difficult for us to ensure that we could continue having fun today and provide for our family tomorrow. Having this plan has really helped us feel a little more secure that there is something going toward our children’s future.”
The Zhou family now saves the equivalent of around RMB 7,000 a month, which goes into a fund earmarked for both the children’s education and the couple’s retirement. The investment has a forecasted yield of over 5 percent a year and is managed by an advisor, something that Zhou benefitted from after finding that “the technical jargon of financial planning [was the]greatest cure for insomnia.”
Regardless of your circumstances and needs, independent financial advice should be free and there is often no harm in consulting a professional to see how to make the most out of your current and potential wealth. The most important is to start thinking about the future as soon as possible. A small amount put aside today could go a long way towards securing the best education for your kids.
Editor’s note: Mark Matlaszek was interviewed by beijingkids to provide independent financial advice and this does not equate to an endorsement of the investment packages recommended by BlueStar AMG or any other asset management company. All investments carry a certain level of risk and you should first carefully consider your financial position and the potential losses you are able to absorb.
BlueStar AMG is an asset management group operating across Asia and offering a range of savings, investment, and insurance. The company offers a free 45 minute consultation to discuss your needs. Citizens of mainland China are not permitted to transfer funds to overseas institutions so are normally ineligible for the company’s savings plans, although property investments are available to the domestic market.
16/F, Gemdale Plaza, Tower A, 91 Jianguo Lu, Chaoyang District (5920 8238 firstname.lastname@example.org) www.bluestar-amg.com
A website providing detailed information about world universities, including world rankings and up-to-date fee information. www.topuniversities.com
Find the downloadable 2014-2015 School Choice Guide here.
Photo by Ken