Preparing for your child's education

Do you have kids? or planning to have one in the future? If yes, have you considered the cost of their education? I mean, I think everyone has thought of it but have you actually tried quantifying its cost? I found myself asking that question one day and this led me to formulate a table for the education expense. I used a mid-level school tuition fee as basis for the cost with a yearly increment of 10%. It is fairly a simple assumption and this gave me an idea on the amount that I need to prepare for my kids.

Here is the table that I made.

Looking at the numbers of the tuition alone already made me cringe and I intentionally didn’t include the miscellaneous fees. I also browsed thru the 2006 report of the expenditures on children by families and found out that 10% of the total expenditure for raising a child goes to education. Maybe it is fair to say that we really need to plan for it.

I think most of us prepare for this expense thru savings. Some funding come from OFW’s abroad which explains why the country has an influx of dollars just before the enrollment season.

Another way for preparing is thru pre-need educational plans. However, I wonder how many Filipino’s still trust pre-need plans? The loss of confidence was stemmed by the pre-need industry collapse which led many to abandon the idea of obtaining one.

I'm glad that Congress (thru House Bill No. 4343) is doing its part in preventing further bust of the pre-need industry. Hopefully, this will provide the control and safety net not only to the pre-need companies but more importantly the plan holder.

I have several educational plans for my kids and I’m fortunate that I chose a pre-need company that had the stability to withstand the crisis. I believe that every buyer bears the responsibility to check if the pre-need company has the ability to provide what is stated in the contract. Remember, you are parting your cash with nothing tangible to hold on to except for their promise of delivering the benefits in the future.

Here’s another tip, whenever the sales agent presents you with an illustration of the plan, do not take the figures on face value. Most of the time, the presentation material highlights figures that are already summed up which makes it look astonishing. Take time to compute for the total cost and compare it with the benefit. The yield will give you the total interest for the plan. You may want to further divide it to obtain the annual rate and see if it falls with your target return. If it meets your criteria, then you probably met a match.

I computed the returns for the educational plans and realized that I will earn an interest of 4.5% per annum for the entire coverage. When I got the plan, I wasn’t particular with the returns for that matter. I just want to ensure that I have at least something for my kids the moment they are bound for school. If I were to make that decision today, I’ll probably ditch getting those educational plans. Those plans will provide me with a return but I still think that I can beat the interest that it offers. I will instead put my money on other investment instruments which can yield me more.

Regardless of the way, the preparation for education expense must be part of everyone’s financial discipline. Not obtaining a pre-need plan spares you the hassle from the amortization. However, it does not give you an excuse to enjoy that money today. It becomes more relevant that you should save more in an effort to reach that goal by getting a higher return rate on a shorter period of time. Just remember that at the end of the day, it’s your children who will benefit from all of this.