One of the major concerns for parents in this era is the provision of quality education for their child/ children. Therefore, it is important to find the appropriate financial alternatives to guarantee it.
A quality education for your children will allow them to have greater opportunities. It will also facilitate them to have the indispensable tools to be professionally successful. This, in return, will give them a better lifestyle.
College, for example, is one of the most expensive phases for most parents. This not only experienced in the developed countries but also right here in Kenya. You have to pay for tuition fees, accommodation as well as other monthly upkeep expenses.
As a parent, there are many benefits of having alternative sources of income. Passive income, peer-to-peer lending, affiliate marketing just to name a few. This must be done before your child finishes high school, otherwise, say hello to debts and high blood pressure.
If you prefer the 9-5 jobs, SAVE!
If you start early, you can save a good amount of money for your kids’ education, and still live stress-free.
Saving is a concept that many people deem impossible, especially when living from paycheck to paycheck. It is also a culture that is hanging by a thread in our very own country- Kenya.
We are not alone in this. According to a recent Pew Charitable Trusts study, one out of every three U.S. families has no savings and one in 10 with revenues greater than 100.000 dollars a year.
According to a study by the Federal Reserve Bank of San Francisco, people with a university degree earn one million dollars more than those with a secondary education only. This, of course, is a life time earning, on an average basis.
Another study by Georgetown University found that 99% of the 11.6 million jobs created during the recovery of the so-called “Great Recession” as of 2010 were for university-educated workers, who for the first time in history, make up the majority of the US workforce, and barely 80,000 for workers with a high school diploma or less.
This, of course, explains why many parents want a quality education for their children. If you have children, it is never too early to think about saving to pay for college.
Why is it important to save for the children’s university?
– Increase in university costs:
When you start saving early, you will be well prepared when the college bills come knocking. The saving has to be done continuously is you want to achieve this dream. You can visit FinAid and calculate how much the university will cost at the time your child is ready to attend.
– Because it represents a benefit:
It does not matter if there is little that you can save, every penny is worth to pay for the higher education of your child.
Develop realistic savings goals and save regularly by separating a fixed amount of money at a set time. For example, if you save $14 per week (two dollars a day) in an account that earns 1% interest, you will accumulate more than $12,400 at the end of a 17-year period.
– Less debt, more investment:
Many families have to rely on student loans to cover university costs. Saving for college now can reduce your need for a loan in the future. It is convenient to earn interest by opening a savings account today instead of having to pay interest on a loan later. The best graduation gift you can give your child is to help him or her finish college free of debt.
How to save?
– Choose the right savings plan: If you are from the US, then savings plan for higher education and prepaid tuition (known as 529 Plans) offer tax-free withdrawals to meet college expenses. To learn more about these plans and decide which one is right for you, visit CollegeSavings.org.
With the cost of tuition rising, it’s a good idea to look ahead and think about how much higher education will cost when it’s time for your child to go to college.
In Kenya, people have turned to financial institutions such as SACCO’s when it comes to saving. They have better rates, for both saving and borrowing plans compared to traditional banking. Additionally, many insurance and banking companies have designed saving plans for education purposes.
If today a family has more than one child studying, the monthly expense can easily exceed $ 700,000 depending on the career. Nobody knows how this value can evolve in 20 more years, therefore, providing the opportunity to study, involves an important expense that must be solved in some way to prevent them from starting their professional lives in debt.
We present 3 tips for you to start saving as soon as possible:
–Analyze your financial situation: the idea is to start saving once your child is born. If you started saving later for higher education, it is very important to monitor your finance.
Have at least a rough idea of how much money you will have to pay for studies and consider if eventually, you will require some kind of financial support. We are saying a rough idea because, by the time your child gets to college, inflation might have kicked in and inflated the bills by a large margin. Your estimates should have an allowance of an increased cost of living.
– Start with a term deposit: start a savings plan with a fixed term deposit, which allows you to save a certain amount in a bank for a certain period of time each month. After that period, the entity will return the money, along with the agreed interest.
For example, if you start saving from the birth of your child $10,000 per month for 18 years, you will achieve a capital of $2,160,000. To do this, add the monthly profitability of this value, which despite not being high (approximately 0.5%), will finally add up to a total of approximately $1,730,000.
In summary, of the total that you save with a fixed-term deposit plan, little more than $2,100,000 will correspond to the funds that you deposited, and the rest ($1,730,000) to the interest payment of the bank.
–Open a savings account for children: if you did not start saving since the birth of your child you still have a chance although you have to make up for the years lost.
Opening a savings account for children is an option that several banks in the UK as well as other countries like US, Canada offer. You can start with an initial amount of between $1,000 and $10,000, and thus help your child in the future to study for “free”.
The most interesting thing about this is that parents are now slowly becoming aware of the habit of saving for their children’s college education.
Planning for something as big as children’s college education is a big step. Here are a few more steps that will help you shape the future of your children.
- Open a trust
It is money that accumulates free of taxes and only pays an annual commission. Here we explain that the return of the investment is not considered as income, and is free from the payment of Income Tax.
- Advice on finances
Saving for the education of children is such an important investment that parents should have a good strategy. Correct advice will allow a greater proportion of income to be allocated to cover education.
- Take notes about the years of study
Your children may want to study a four-year specialty. What happens if they must stay longer in the university? Forbes recommends thinking about the financial implications of these unforeseen events. Additionally, you should list down the plans you can follow to address these costs.
- Encourage financial education
If you are going to take this big step, teach your children to manage their finances. It is, therefore, essential to educate them from a young age on how to manage finances.
- Start early
To minimize the impact of borrowing, you should start saving as soon as possible. The younger your children are, the more returns you can achieve. Experts recommend being consistent with the strategy with a rule. The rule is simple, really. Multiply the age of your child by US $2,000, to estimate how much you should have saved by then. (New York Times)
- Divide the savings into equivalent categories
Economists suggest reviewing the small items of money that fill the credit card account month by month. Once you have done this, ask yourself if it is worth buying those items. Or whether the money could be put into better use- an education fund.
In conclusion, we cannot dispute the importance of saving for our kids higher education. The sooner you start the better. Apart from ensuring your child gets quality education, you will also be cushioning yourself against high costs.