Article by: Nipapun Poonsateansup CFP^®   Independent Finance Planner

Parents’ breathing is for their children with the aspiration to see their children having the best life they could offer.  Rising a kid is not a simple task and requires a lot of money. A good and disciplined financial planning can help you reach that your goal.

One of the precious gift parents can give their child is education. This gift is ‘precious’, literally. Parents might be surprise of how much money is required throughout the course of a child education from kindergarten at 3 years old to Bachelor degree or even Master degree. Some might say ‘cost an arm and a leg to rise a child’. Do not be alarm, we have financial tips to help you achieve your goal.

The following are preparatory steps for children education planning:

1. Set your goal: Identify your goal and education institute of your choice, public, private or international and up to Bachelor degree or Master degree. 

2. Consolidate all potential expense, determine from type of education institute you want your children to join.

3. Factor in inflation rate into your calculation. The average inflation in education is at 6% per year, we can roughly calculate inflation by assuming the education cost will double every 12 years. For example, if your have a 6-year old child and want to plan for Bachelor degree at private university the current cost is between 192,000 – 288,000THB and in the next 12 years, the cost will become 384,000 – 576,000THB.

4. Plan your savings and investment early to get time advantage that requires much smaller principle. That would put less constrain on parent’s budget i.e., 1 million THB for Bachelor degree education saving can invest for 6% annual yield.

Description / Child age when investment started	First Born	6 Years old	12 Years old
Bachelor degree education fund (THB)	1,000,000	1,000,000	1,000,000
Investment period	18	12	6
Expected yield (% per year)	6	6	6
Annual savings for investment (THB)	32,357	59,277	143,363
Monthly savings for investment (THB)	2,696	4,940	11,947
The total principle (THB)	582,426	711,324	860,178
Investment earnings	417,574	288,676	139,822

As shown in the above table, if we start planning since the child was born we would have investment period of 18 years. Therefore, savings needed for investment is 2,696.42 per month or 32,357 per year with the total investment of 582,426 to achieve 1 million education fund (expected annual yield of 6%). Evidently, start early for longer investment period with less principle and more earnings.   

5. Prevent potential risk in the future with life insurance. Parents has an important role in ensuring they children receive good education. To protect your children future from unforeseen passing of their parents, our recommendation is to buy a life insurance policy with enough insurance coverage for all of your child’s education expenses to mitigate the risks of your absence.

 

In conclusion, start savings and invest early will give you a head start in building up children education fund. Invest in a longer period, allow your money to work for you and also lessen the risk from investment fluctuations. Keep in mind that to earn the expected annual yield of 6%, you have to invest in higher risk assets i.e., equity fund. Investors should study their choices prior to actual investment. In addition, life insurance is also a crucial part of a successful children education fund.