All parents want the best for their children, but due to a lack of education, such as planning and knowing how much to save for education costs and where to save for their children’s education costs, it often goes unplanned for. 

The long-term increase in education costs is roughly 10% and the long-term inflation rate is at 6%. This means that if you are lucky enough that your salary is keeping pace with inflation, education costs are still increasing 4% per year faster than your salary increases and over time education costs become a bigger portion of household expenses, which will also impact your financial independence planning. The only way to combat this dilemma is to know how much you need to save for your children’s education costs and start saving as soon as possible. This blog aims to assist the parents of South Africa’s future generation with a tool to calculate how much they need to save monthly. We will provide information on where to save and which funds to invest in with the hope that you and your children are in a better position in the future.  

After extensive research we decided to choose 4 public primary schools, 4 public high schools and 4 universities in South Africa (higher education) which are suited for the middle-income class South African. The calculator can be adapted to your needs and the research is for illustration purposes only.  

The average costs of education in South Africa from the above research:  

The above graph shows the cost range per year and average cost of education in South Africa for public institutions only. For illustration purposes, we will be using the average cost per year in our tool examples.

How much to save for your child's education cost

Let’s make an example of Family X, which has a little baby girl of 1 year old. Family X needs help in calculating her education cost from high school throughout university and has saved up R30 000 in a tax-free savings account for her. We use the Education Calculator to calculate the amount needed to supplement their current savings.

High School:

We use the cost in the tool as per the above average for high school at R39 237.5 per year, and 5 years to complete high school. There are 13 more years left to invest before their little baby goes to high school, when the funds will be utilised.

When inserting all of family X scenarios in the tool, we can see that an additional R1527.78 must be invested monthly to fund the education costs for high school. In the next section we will look at university/tertiary education costs. 

University/Tertiary Education:

Using the same scenario for Family X as above, their little baby girl has 18 years before she goes off to university to further her studies. Family X wants to plan for 4 years of tertiary education using the average tuition fees for university costs as per the table above at R45 967.75. The R30 000 that they have saved up was used in calculation for her high school education costs. We turn to the Education calculator again for help. 

When inserting all of family X scenarios in the tool, we can see that an additional R1442.43 must be invested monthly to fund her university/tertiary education costs.

Summary for Family X:

With the current R30 000 saved in a tax-free savings account, they will need to start saving an additional R1527.78 monthly for her high school education costs and a further R1442.43 monthly for her university/tertiary education costs. This is a combined monthly contribution of R2970.21 to fund their daughter’s education costs from high school throughout university. 

Where to save for your child's education costs

A tax-free savings account is a great investment vehicle for education cost savings as the maximum contribution of R3 000 pm (R36 000 per year) is high enough when investing in advance as Family X did in the example. Investments can be withdrawn at any time and all the growth in the investment is free of tax, which over time is a great deal not paid to the tax man. Tax free savings accounts are available at LISPs, banks, life companies, investment managers platforms. Have a look at the best rated tax free savings accounts in South Africa. 

Which funds to invest in

For long term growth (5 years+) investment needs we would recommend investing in equities only, as this asset class should provide the 12% return assumption as per the tool. Some examples of well diversified equities investments are funds or ETFs that track the MSCI World Index, which covers 23 developed countries' stock markets. This provides great diversification and exposure to great companies at a low fee. Below are some of the popular examples.   

Recommended funds/ ETF for long term investments: 

Satrix MSCI World ETF (Total Investment Charge (TIC) = 0.35%)

1nvest MSCI World ETF (Total Investment Charge (TIC) = 0.40%)

Sygnia MSCI World ETF (Total Investment Charge (TIC) = 0.69%)

* This is not financial advice, please do your own research on funds. 

* Historical returns are not a guarantee for future performance

At Finsights, we want you, the everyday hero, to take control of your finances, become aware of financial independence, grow your knowledge, and let us be your financial independence partner. 

 Onward to Financial Independence