Gulf News_june202009
10 July 2008
Gulf News: Selecting life insurance for the family
I have two young children and want to ensure that I can afford to pay for their education. Would I be best saving for their education, or paying for it out of income when the time comes?
The cost of educating children in Dubai has increased significantly over recent years, and recent trends suggests this to continue. The average increase in school fees has been approximately 8% per annum which is on the whole greater than the annual rate of inflation. Fees to educate a child privately in Dubai are currently on average between 15,000 and 20,000 AED a term (45,000 to 60,000 AED per annum). In addition to the school fees there are also the ancillary costs incurred with educating your child, such as the uniform and materials required by the school, these costs all need to be planned for too. Therefore, it would be advisable to start planning for your children’s education costs now rather than plan to pay for the fees out of income when the time comes.
There are a number of ways in which you can plan for your children’s education, but often the most suitable is to put away an amount from your wages on a monthly basis into a regular savings plan. This approach will allow you to accumulate an investment fund to assist with the cost of school fees in a few years time.
When establishing a savings plan for education there are a number of factors that need to be considered to ensure that the plan meets with your current and future objectives. Some of the considerations are as follows:
It is important to determine what level of contributions should be paid into the plan on a monthly basis. There is often a fine balance to be struck to ensure that the level of contributions is sufficient to meet the education funding goals in the future, assuming certain levels of investment growth and increases to school fees over the years, while ensuring the size of the contribution is affordable to you.
When determining the level of contribution it is often advisable to calculate the total estimated capital required to educate a child from age 5 to 18, or 21 if it is anticipated that they will go on to University. Then work out what level of contribution needs to be paid each year to achieve this goal. As it is important to ensure that these calculations are accurate, it is advisable to seek independent financial advice when establishing a school fees funding plan.
It is also important to bear in mind your attitude to investment risk, and ensure that the funds which your contributions will be invested in will be aligned to that. Depending on the funds that you invest in, the level of investment return that can be achieved on your contributions will vary, therefore, it is important to bear this in mind when establishing the savings plan.
The advantage of setting up a regular savings plan for school fees now is that by the time your first child starts their education you will have already accrued a sum of money to pay for the fees whilst contributing towards future fees. Therefore, you are less likely to suffer a financial burden to educate your child privately in the future.
By Sarah Lord, CII chartered financial planner at Nexus.