Saving for children's higher education is perhaps the number one financial priority for parents in UAE.
As they have more reasons to worry about education costs than parents in other parts of the world.
- UAE school fees 'second highest in the world': HSBC study
- Educating a child in UAE costs Dh1 million, says study - Khaleej Times
If you are like me, keen to choose and invest in the best education savings plan for your child(ren), then I would recommend considering the following;
1. Decide where your child(ren) is/are likely to study
When speaking with parents about their children's higher education many parents(especially with young children) are not sure where and what kind of education their children may want to pursue.
Which is fair to a large extent, as it is difficult to predict the future...
However, t is important to plan early and start saving for your child's education.
By planning, visualizing and providing your child good opportunities, you can Create a Future, instead of waiting for things to happen or fall into place.
You can begin with shortlisting the most likely destinations(Countries) within your income range...
The following chart shows the most preferred destination for parents and students in UAE and the average annual cost of education and cost of living as of 2016.
It must be noted that these figures only represent average costs, and may be higher or lower for particular Universities and situations.
India is also a very popular destination among NRI parents; however, the steep competition for seats in preferred colleges/universities and higher fees for NRI children are forcing parents to consider other destinations.
Once you have shortlisted the most likely destinations, you can choose the one with the highest cost as your education savings goal.
For example, the likely destinations for you are UAE, UK and Canada, then you must be looking to save $35,000 * 4 = $140,000 plus the inflation.
This process gives you a number to work with.
2. How long have you got?
Once you have chosen the likely destinations, you must determine how long you have to save for your child's education.
For Eg: If your child is 3 years old and is likely to attend University at age 18, how much time have you got?
If you said 15 years, you are mathematically correct, but in real life do you actually have 15 years?
Our brain is wired to put off; working for events which will happen in the distant future, so by thinking about your child's graduation as something which is going to happen after many years, you are actually telling your brain to procrastinate…
But in reality, you do not have 15 years…
Let me ask you, how many salaries do you get in a month, what a dumb question isn't it? obviously one salary
So 12 months in a year and 15 * 12 equals to 180 months, You actually have 180 salaries and not 15 years.
As each month & salary passes without savings, you are making it more difficult for yourself.
When you start early you give your money ample time and room to work hard and multiply.
3. Impact of inflation!
Inflation is like a hungry monster, constantly eating away our savings for breakfast, lunch and dinner.
As inflation increases, every dirham/dollar you save will buy a smaller percentage of goods and services in future!
It is important to estimate the likely inflation on the university fees and invest your savings in assets which offer a yield higher than the prevailing inflation. (Real Return)
Inflation may largely vary between where you are now and the likely education destination, in this case, it is important to take into account the inflation prevailing in the preferred destination.
For Eg: If the prevailing inflation in the UK on higher education is 5.00% and your child is 3 years old, they will start University in 2032.
If the cost of 4-year graduation is $140,000 as of 2016, it would approximately be $305,000 in 2032.
If you are planning to graduate your child in the UK you will have to save $305,000 in the next 180 months.
The following table provides approximate monthly savings required to reach this goal at different rates of return
|The rate of Return||Monthly Savings required over 15 years to accumulate $305K|
4. When to start investing?
The rate of return and the period of investment determines the growth of your money. The longer you have invested higher the growth.
The following chat shows the growth achieved on an investment over different periods;
|Monthly Investment||Growth rate||Time Invested||Maturity Value|
The best time to start investing is now.
5. Investment Attitude
As an investor, you have many options to choose from; when it comes to investing in your child's higher education. The risk and reward of each investment opportunity differ from one another.
You must carefully analyze the risks involved in a certain investment, before signing up for it. Many investment plans are withdrawn early, because the investors did not do their due diligence before signing up for the plan, and later realized that they did not mean to invest in such a plan.
In order to avoid this confusion, obtain a copy of the term and conditions booklet of the plans you have shortlisted for investing, read and understand the scope and limitations of the plan.
Have a detailed discussion about the underlying assets of a plan for Eg: Equity Funds, Bond Funds, Fixed Income Funds, ETF's and other funds
In UAE you have 3 types of investment plans for education savings;
- Capital protected with fixed and guaranteed bonus
- Capital protected with variable bonus
- Market-linked investments
Based on your goal, time left and attitude to risk, select the most appropriate one.
Do remember that it is your responsibility to choose the best option, there is no use blaming others if you end up buying an investment which doesn't suit your needs and attitude.
6. Include Protection
When investing for your child's higher education also avail life and critical illness insurance to make sure that the goal is met even if you are unable to pay premiums in future.
The following are the most suitable protection plans for protecting your education savings goal;
7. Professional Advice
As a Qualified and Independent Financial Advisor; I can help you set a practical and challenging education savings goal(s), and recommend suitable investment solutions based on your risk appetite.
You can arrange a Free Consultation to understand if we can work together in addressing your investment/protection needs and goals.