written by William Frisby
Are you an expat living in Phuket that has a young family, or maybe you are in the planning stages? If you have children, you may already be paying for tuition fees at a local international school, unless you are lucky enough to be on an expat contract with everything included by your employer.
Whatever the case may be, when your youngsters are old enough to go to university, there isn’t going to be anyone to help you or your children foot the bills unless you come from a wealthy background. University, for many people, is seen as the best time of your life. Free from the clutches of their parents, teenagers are let loose to take the first few steps into adulthood.
For the fortunate ones, this story remains true to this day. But for the rest, the harsh reality of adulthood comes crashing down on them four years later when they begin to realise that the freedom that an education has given them is coupled with a crippling sense of debt which can hang over them for a very long time.
It now appears that achieving the relevant grades is no longer the main worry as it has now been replaced with the burden of the cost.
“For profit higher education is today a booming industry, feeding on the student loans handed out to the desperate.”
Thomas Frank As a parent, I naturally want the best education for my child, as all parents do. But after many years of helping my clients save for their children’s education, I have had to readjust my point of view. Currently, my thinking is “what is the best education that I can provide for them within my means, without landing my child or myself in a mountain of debt”.
This all sounds a bit dystopian, but the cold light of day is now telling us that university costs are rising at an astronomical rate and nothing suggest it’s going to cool down at any point in the near future. The US is widely perceived as the most expensive place in the world to send your offspring for a university education, and rightly so.
All ten spots of the top ten most expensive universities in the world are occupied by US institutions with Sarah Lawrence College in New York coming out on top with a staggering annual tuition fee of $61,236. It didn’t always use to be this way. Back in 1971, the fee for going to Harvard was only $200, and this fee hadn’t been raised since 1949.
Under the leadership of John T Dunlop, in the fall of this year, he increased fees from $200 – $2,600, which is an incredible jump by any stretch of the imagination. A leap of more than 17 times, which is seen by many as the start of the global escalation of student fees. If he had have let this figure rise with inflation then the current cost today would be $15,189, whereas Harvard’s current tuition fees are $45,278.
America is not the only place that has seen these kinds of jumps in cost. From 2002 to 2012 Australia saw a rise in prices of 166%, which blunted Australia’s education advantage as they saw new overseas competition at more attractive prices. Bob Birrell, from Monash University, said that Australia had seen a large influx of students from China and India which had resulted in the costs being pushed up.
New Zealand has also seen the rise that other countries are benefitting from and have been quick to move on this. As of the end of 2015, New Zealand’s education had become their fifth biggest export with a revenue of over NZ $3 billion. The UK is also one of the hotspots for price hikes, and currently, education and living costs are roughly £25,000 annually. However, you can double this cost for a Medical Bachelor.
Germany on the other hand still has free tuition fees for its domestic and international students. Unfortunately for prospective parents, this does not look like it is set to continue after the south west state of Baden-Wurttemberg reintroduced fees in December of 2016. Living costs are estimated at around 1,000 Euros per month in Germany, including spending money, so you could be lucky enough to escape for less than 50,000 Euros for a three year degree.
Many Germans think that it is unlikely things will be the same in ten years’ time, but who knows.
What are my options?
This is the only easy part of the equation for the parent:
1. Let your children pay for their own education
2. Pay yourself for all of your child’s education
3. Share some of the costs between both parent and child.
I think most of us will probably sit in the latter two options of this puzzle, as do I.
How and where do I save for this?
The answer to this question depends on your timeframe, as it always does with the type of investment that you need to take up to achieve your goals. If you are fortunate enough to have a horizon of over five years and you do not have a lot of starting capital, then the simplest way would be to save on a regular basis into some form of structured savings account.
Savings accounts collect money from your account every month which removes the need to have the discipline to save yourself. Once the money has been collected, then your cash is invested into a broad range of mutual funds which have exposure to the financial markets. The goal here is to get your savings to work for you so that the growth of your investment can foot a large part of the bill.
If we take the UK as an example, you will need approximately $100,000 to fund your child through a three-year university degree. (These figures have purposely been calculated in dollars for the simple use of most people) $345 at 6% for 15 years – Amount invested $62,100 – Amount at maturity $100,000 $610 at 6% for 10 years – Amount invested $73,200 – Amount at maturity $100,000 $1435 at 6% for 5 years – Amount invested $86,100 – Amount at maturity $100,000.
Another option would be investing a lump of money at the outset and then leaving this lump of money to grow until your child is ready to attend university. $41,000 at 6% over 15 years – Amount at maturity $100,000 $55,000 at 6% over 10 years – Amount at maturity $100,000 $75,000 at 6% over 5 years – Amount at maturity $100,000 For anything less than a five year timeframe, then I would advise that you just put the money in the bank.
You will naturally only receive 1-3% growth, which in reality is only securing your purchasing power by keeping up with inflation, but it’s probably the best way to save for the short term.
If you would like any more information on how savings plans work then email [email protected]