Education Trust: When to start one and how?

By: Natasha Archary

Children don’t come cheap. Monthly living expenses aside, the cost of planning for a secure future and higher education are exorbitant and only increasing steadily with each passing year. Due to a lack of information available, or because they lack the means to put aside extra cash every month, many parents do not consider investing in an education trust,.

A lack of information about education trusts should not intimidate you from starting one for your child. It’s not as complicated or costly as many think and, from as little as a hundred rand a month you could be building a brighter future for your little one.

Some of the most common questions around education trusts are:

When is a good time to start?

Experts say the most opportune time to start your child’s education trust is the day he or she is born. This will give your investment enough time to grow considerably. If you did not start the trust at birth, then the right time to start is now. With the cost of education in South Africa increasing at a rate of ten percent every year, now would be a good time to start.

How much is it going to cost me?/Will I be able to afford this?

Can you afford your weekly/monthly cigarettes, coffees, take-outs and nights out? If you answer yes, then by cutting back on the monthly costs of one of the above you can afford to start your child’s education trust.

By contributing as much as you can afford to over the years, with interest, the amount will accummulate to a healthy figure.

Why save for education? Won’t it be free soon?

Waiting for the #FeesMustFall campaign to triumph is gambling with your child’s future. You want to give them the headstart in life that will give them an upper hand in a volatile environment, also known as: Life. Education inflation, over the past fifteen years, has been at almost ten percent, year on year, according to Statistics South Africa. This means that, unless your salary increases by at least ten percent each year also, as time goes by it will get increasingly more difficult to cover the costs of your child’s higher education needs.

How long does it take?

This is entirely up to you. Should you wish to start an education trust fund for ten years, fifteen or twenty years, it all depends on how old your child is, when you will require the funds etc. If after ten years your child will be done with matric and heading to varsity, you will then have the option to withdraw some or all of the money to settle his or her costs for that year. You also have the option to put the trust on hold, if you run into financial difficulties and can resume the monthly installments when you are able to. Be sure to talk through the options with your financial planner.

Why shouldn’t I just take a loan?

Credit is best avoided altogether. You’re borrowing money you don’t have and will have to repay in substantial amounts before the interest is paid off and you finally start seeing a decline in the amount you owe. The power of compound interest however, works in your favour when you invest. Your money accummulates at the same rate of interest billed to you when you take a loan.

Many parents don’t know where to start when it comes to investing money in a trust or starting an investment in general. The key thing to remember is that there are many options available to you and a host of companies that offer holistic investment solutions to help you make the most of your contributions. Research, ask for advice and find a reputable brand to manage your funds. It can make a huge difference in your child’s life and give you absolute peace of mind.

Written by: Natasha

Education Family Financial Planning Future Planning Investing Parenting Trust Fund