Jump start your child’s educational fund to pave the way to a brighter future.

In most families, good education is highly cherished. Parents understand that a quality education can be the bridge to better opportunities, elevated income, and a promising future.

Beyond personal gains, educated individuals contribute significantly to society and bring prosperity to their families. Hence, preparing early for your child’s educational journey is akin to investing for future dividends.

Cost of Raising a Child in the Klang Valley

Navigating the financial landscape of parenting in the Klang Valley can be a significant challenge. According to insights from The Edge Malaysia in 2018, the estimated cost for parents to raise a child, covering everything from birth to university graduation, ranges between RM393,000 to RM1.3 million.

This substantial sum varies based on a multitude of factors: the region of residence, the nature of childcare amenities selected, and, most pivotally, the kind of education envisioned for the offspring. Education, financial planners note, dominates a significant portion of this expenditure.

The deciding factor in these education-related costs boils down to a choice between private or public institutions and whether these establishments are domestic or international.

Just as in investment, time is pivotal in educational planning. If parents of young children start today, the angpao or gift they can offer to their child when the time is ripe will be significant.

Here are 5 steps to strategically navigate this preparation.

#1. Estimate the Cost of Education

Parents must take into account several variables while estimating the future cost of education:

  • The potential field of study.
  • The choice between local or overseas institutions.
  • The expected living costs, especially if the child is studying abroad.

However, these numbers aren’t static. A yearly review will keep you aligned with the most recent trends. Multiple sources can provide a ballpark figure, ensuring you’re not basing decisions on outliers.

#2. Understand Your Current Financial Position

Before plotting the journey, one must know the starting point. Assets might be scattered across cash, properties, and varied investments. Dedicate a certain percentage exclusively for your child’s education. This might involve reserving a part of your liquid cash or marking a property for future sale. The idea is to distinctly earmark these resources.

#3. Determine the Amount to Cover the Shortfall

Utilizing a financial calculator will simplify the calculation of what you need to save or invest. Once the future value of the education cost is derived, compare it with what you currently possess. This helps in calculating the monthly or yearly savings required to bridge the gap.

For instance, if the cost of education today stands at RM100,000, considering a 4% inflation for the next 17 years, this cost will swell to RM194,790.05. If you currently have RM25,000 and aim for a 6% return rate for the subsequent 17 years, this will dictate how much you should save regularly.

#4. Choose the Correct Financial Vehicle

The investment journey is seldom linear. But when it comes to your child’s future, three investment rules stand out:

  • Preserve Your Investment Capital: The priority should be safeguarding the capital, even if it means compromising on high returns.
  • Diversification: No single investment is a silver bullet. Diversify, but also consider instruments like PTPTN’s National Education Saving Scheme (SSPN).
  • Stay Focused: Regularly review and adjust your investment strategy, keeping the final goal in mind.

#5. Avoid Common Education Planning Pitfalls

Along the way, you should be wary of these mistakes often done due to complacency or lack of knowledge.

  • Overlooking Retirement Planning: While children’s education is essential, retirement planning is equally crucial. There are options like education loans to fund studies, but fewer cushions in retirement.
  • Misplacing Trust: Beware of fraudulent schemes that prey on parental concern. Always consult with a licensed advisor.
  • Negligence: Regularly reviewing your investments is crucial. An annual check can ensure that the financial trajectory aligns with the intended goal.

Conclusion

Preparing for your child’s education is no less than a marathon. It demands foresight, discipline, and an unwavering commitment. With the proper steps and timely decisions, parents can make the most of the power of compounding, resonating with the famous saying: “He who understands it, earns it; he who doesn’t, pays it.”

A study by HSBC Holdings plc in 2014 highlighted that 84% of Malaysian parents wished they started saving earlier for their child’s education. Every parent wants the best for their child, and education plays a pivotal role in shaping their future.

To truly capitalize on these suggestions, avoid common pitfalls. These include not accounting for inflation, infrequent reviews of investments, and hastily drawing from retirement funds. Remember, preparation today promises a brighter future for your child tomorrow.

 

Have you started to save for your child’s educational fund? Let us know in the comments down below.