5 Mistakes parents make when saving for their child's education
Education fees are skyrocketing, it’s no wonder parents feel torn between wanting to give their child the best opportunities and sacrificing other financial dreams. When it comes to investing in their children’s education, parents in Hong Kong spend the most; spending €108,000 on average according to HSBC. In fact, 90% of parents help fund their child’s university education and most are willing to make personal sacrifices to do it.
However, with the hefty price tag that comes with the increasing costs, cutting back on a few vacations or hobbies may not be enough to pay for these expenses. So, here are five common mistakes parents make when trying to save for their children’s education that you can avoid and give your child the opportunities he or she deserves, without breaking the bank.
Mistake #1: Not Including Education As Part of Their Overall Financial Plan
Most people don’t plan for their financial goals. So guess what? They fail to achieve them. A recent HSBC survey showed that 35% of parents wish they had started saving earlier, and 25% said they wished they had put more money aside for their child’s education.
Include education funding as part of your overall financial plan by noting down how much you’ll actually put away, and how often. Then follow through, and review your plan to adjust for changes in life’s circumstances. Over the course of 10 to 20 years, in addition to paying for your children’s education, you’ll likely buy a home, own a few cars, take vacations, and save for retirement. Without a plan on how much you’ll allocate for your child’s education, you’ll become easily distracted by other priorities. The last thing you want is to be scrambling to come up with a pool of money for school or forgo buying something equally as important.
Mistake #2: Not Investing The Education Savings
The fastest and most effective way to grow the education fund is to invest it in assets that generate a higher rate of return. Unfortunately, most make the mistake of merely keeping it in a savings account, generating very little to no return. In fact, with inflation, money stored in savings accounts loses value over time. So, investing your education fund in investment products that produce a good rate of return gives you the advantage of compounding.
Note that, depending on your citizenship and residency status, you may be able to take advantage of tax-deferred or government-sponsored plans geared towards education savings. For instance, in the U.S. there’s a 529 plan, and education savings plans in Canada and Australia. You’ll want to check with an advisor or tax accountant in your home country on the rules and restrictions. If you’re not sure what to invest in, speak to an advisor who will be able to guide you based on your risk tolerance. And don’t forget to ask about the fees they charge to invest your money as these take away from the returns you generate.
Mistake #3: Underestimating The Costs
As seen earlier, university tuition fees are not cheap. Fees in Hong Kong are anywhere between €7500 to €12,000. If you’re planning on sending your child overseas, the costs could be double or triple.
Schools are increasing their yearly fees by a few hundred to a few thousand euros to keep up with inflation, and that’s just the tuition costs. There are the flights between school and home, boarding or living costs, books and much more to account for. Today’s fees will not be the same in 10 or 20 years, so be sure to account for this rise in prices, and every few years do your homework on costs. After all, it’s better to have saved too much than not enough!
Mistake # 4: Not Encouraging Their Child To Apply For Scholarships
Scholarships reward academic success or specific talent and skills. If your child is gifted or caters to a specific niche, apply for a scholarship. There’s no downside, but the upside is that you’ll receive extra financial support. Plus, being granted a scholarship, especially if it’s a prestigious one, can help your child stand out against other students when applying for internships, in-house programs and job opportunities.
Mistake #5: Letting Emotions Rule Choices For University
Many parents will be stuck on the prestige or location of a university they want their child to attend. There is nothing wrong with wanting to give your child the best opportunities, but don’t exceed your limit and financially overburden yourself. There are many alternatives that can also give your child a great postgraduate education and boundless career paths.
For example, a growing number of parents are considering a university degree that is partly or completely online. The obvious benefits are that it saves them a bundle in living costs for their child, and typically the courses are less expensive. It’s also a great choice for children who aren’t keen on moving far away from home or are independent learners. One caveat: before enrolling in any online course, make sure that the program offered is accredited and has the same legitimacy as traditional degrees.
It is the specific programme your son or daughter enrols in, and the experience he or she gains that will impact their career opportunities rather than just the name of the university.