"Mom, I'm pregnant"
These are not the words a mom with a teenage daughter wants to hear.
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What does education cost nowadays?
Right now a government primary school costs around R400 per month per child. Children in government schools still do extra activities and sports and you will need to provide equipment and pay for extra murals for your child.
Private schooling is another kettle of fish entirely. Here you can look at spending anywhere between R3 500 to R4 500 per month for senior primary. High schooling will cost you between R4 000 to R5 500 per month. This is excluding additional extra-mural costs and sports gear.
A medical degree, on the other hand, will set you back anywhere between R30 000 to R33 000 in the first year, according to the University of the Witwatersrand, and that's without books, not to mention yearly escalations.
So what can you learn from this?
Private schooling costs way more than a university education so unless you have serious ammunition behind you, first focus on providing for your child's tertiary education. At the end of the day you’ve got three options:
Option 1: loan the money closer to the time
Let's say the school calls you and says your child has demonstrated a remarkable aptitude for computers and they recommend that he/she studies further in a tertiary institution next year.
Your heart swells with pride but then the harsh reality sinks in. "Where am I going to find the money to send my child to varsity?"
In a blind panic you phone the university in order to discover whether they offer study loans. "Yes!" you hear, "but only to low income families."
"So who qualifies as a low income family?" you ask. "Well, a family that earns less than R80 000 per annum." So it's off to the banks in order to get the best quote. Right away you're told that you'll need to sign as surety for the loan.
Next, because your child is a first year student, you get to pay the prime rate of interest plus two percentage points.
The good news is that the rate charged will drop as your child completes each successive year. The bad news is that you have to start paying interest on the loan from day one.
Option 2: pay as you go
This is only an option if you have the cash flow to finance the monthly fee. R25 000 in year one divided by 11 months equals R2 272 per month.
Even for those who can afford these repayments, it still means that there is R2 272 less going towards retirement at a time when this should be a priority. (Even as you plan for your children's education you shouldn’t lose sight of your own later needs).
Option 3: start saving now
You decide that the birth of your child is the best time to start saving for his/her education. This means that you have a full 18 years ahead of you in which to save.
The problem you immediately face is that the B.Comm (which currently costs R25 000 per annum) will in 18 years time (with an annual increase of 10%) cost R138 997 for year one alone.
The good news is that in 18 years time you should be earning roughly that amount on a monthly basis anyway.
Make a wise start
It makes sense to start saving as soon as possible for your child's education. Find a reputable advisor who will provide continuous feedback on the performance of your investment. By starting to save as much as you can now, you'll be paying yourself rather than paying the bank. It's better to earn 5% per annum on money you save than pay double that on money you borrow.
Visit www.wealthandrisk.co.za for more information.
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Image: Getty/Gallo Images
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