How can I invest in my child's education?

Regardless of how people choose to educate their children, the pressure that comes with paying school fees is fairly universal. Parents today face rising education costs amid a growing cost-of-living crisis, recession and pandemic aftermath. And due to education inflation, saving for their children's education is no longer a luxury, but a necessity. But what exactly is education inflation, and what does it mean for parents?

What is education inflation?

Education inflation refers to the rate at which the cost of education rises over time, and it typically increases faster than general salary inflation.

This means that the cost of tuition, books and other educational expenses is growing more quickly than the average price of goods and services. As a result, it becomes challenging for parents to save enough for university fees.

Whether investing towards your child's future is a long- or short-term goal, the best time to start is now. So if you're a parent who's ready to start, here are three options that you can consider.

Three investment options to give your child a head start

There are various types of unit trusts, but these investment structures are generally simple and cost-effective to invest in. You can buy a unit trust in different ways, either directly from your asset manager or through a linked investment service provider.

Due to education inflation, you need to make sure that the asset class you've invested in is likely to beat inflation . That's why equities are usually the way to go - they're the only asset class that have proven to beat inflation effectively over time.

1. Unit trusts
   There are various types of unit trusts, but these investment structures are generally simple and cost-effective to invest in. You can buy a unit trust in different ways, either directly from your asset manager or through a linked investment service provider.
   
   Due to education inflation, you need to make sure that the asset class you've invested in is likely to beat inflation . That's why equities are usually the way to go - they're the only asset class that have proven to beat inflation effectively over time.


2. Tax free savings accounts
   Another option is opening a tax-free savings account (TFSA) in your child's name. This way, you can put money away every month for your child's education until the funds are needed. The best thing about this option is that the money invested into a tax-free savings account is not subject to tax on any interest, dividends, capital gains and withdrawals, unlike a regular savings account.
   
   Just note that there is a cap to how much any individual can save in a TFSA each year, so while this option may not cover all your needs in saving for your children's education, it can help supplement them.


3. Education saving plans
   These are usually endowment policies. With them, you can make a once-off lump-sum contribution or a monthly contribution for a specific amount of time, and then at the end of this period, a lump sum will be paid out to you. With this kind of plan, there is a minimum investment term to keep in mind.
   
   One of the benefits of this option for higher-income earners is that endowment policies are taxed at a flat rate, which is better for your pocket. In general, any option that has the goal of providing for a child's education is important because savings are separated for a specific purpose.

Teach accountability by involving your kids

Make sure your children are part of the process of saving for their education (especially as they become older and more mathematically and economically literate). This is an invaluable teaching tool and a real opportunity to instil lessons such as the value of money and the importance of saving.

Ultimately, they will have gained a good formal education and excellent life skills to take with them into the adult world.