Saving for the rising cost of education in the Covid-19 era

The Covid-19 pandemic has dramatically changed the financial lives of South Africans, making saving for education even more challenging. Uncertainty around job security, market movements, and the duration of the pandemic is putting additional pressure on parents who need to get their children through the education system.

The cost of education has also soared over the past decade. And, though many education institutions revised their fee structures due to new developments such as the forced shift to online learning, they are likely to return to pre-pandemic levels when life resumes and demand for education returns.

Reports estimate that if your child started grade R in 2017, you can expect to have paid between R1.3m and R3m, depending on whether they attend public or private institutions, by the time they get a three-year degree from a university in 2033.

Data from Stats SA shows just how much these fees have increased. Primary school fees increased by 7.3% in 2020 compared with 6.9% in 2019, and those for high schools increased by 7.6% compared with 6.9%. Meanwhile, fees for tertiary education institutions climbed by 4.7% compared with 2019’s increase of 6.2%. This means that each year it’s going to cost more to send a child to school or university in SA.

Tuition, books, accommodation, a computer, a smartphone, cloud and internet access, and other associated expenses are already costing parents about R300,000 to R350,000 for each child every year.

Cost of education in SA by 2022

Public primary or high school: R50,000
Private primary school: R152,000
Private high school: R200,000
University: R85,000

Cost of education in SA by 2030

Public primary or high school: R105,000
Private primary school: R255,000
Private high school: R405,000
University: R180,000 

As a parent, you naturally want to ensure your child has access to quality schooling to be given the best chance at succeeding later in life. This means that SA households will have to make more room in their budgets to account for rising tuition fees.

This may sound overwhelming, especially in the current economic climate. However, if you start saving as soon as possible — even if it is a small amount each month — you will benefit from the magic of compound interest. This ultimately betters your long-term gains.

Whichever savings or investment plans you opt for, it is prudent to create a debit order so that you remain a regular and diligent saver over time. Fortunately, there are several ways that make it easier to save money for your children’s education.

Two kinds of products that you may want to consider are:

Inflation-linked unit trusts

Depending on which portfolio you buy into, inflation-linked unit trusts can help you to beat inflation as they have inflation-related targets as performance benchmarks. Unit trust structure and fees are transparent so you can relax, knowing there won’t be any nasty surprises down the line. They also offer flexibility should you require early access to your funds.

You can invest a lump sum or a monthly amount as it suits you, and gain exposure to local and offshore markets.

High fees, combined with uncertain future markets, might not make investing seem worthwhile at face value, but starting to save from as early as grade 1, or even earlier, will help you ride out market fluctuations.

Tax-free savings accounts

Parents could also consider a tax-free savings account, which allows annual contributions of up to R33,000 and a maximum of R500,000 over a lifetime. All the investment returns earned in the accounts are 100% tax-free and the money can be withdrawn at any point.

You can open a tax-free account for your child as soon as they have an ID number. Any money you save in that account becomes technically and legally your child’s money. When they turn 18, they may decide to spend it on a trip abroad rather than use it to fund their tertiary education, so communicating the importance of a good education to your child from an early age is important.

There are a few provisions regarding a tax-free savings account that must be met. A financial planner at Standard Bank Financial Consultancy can advise you on a plan that keeps you within the annual threshold amount of R33,000 and the lifetime limit of R500,000.

About the author: Lloyd Buthelezi is head of Standard Bank Financial Consultancy.

This article was paid for by Standard Bank.