FINANCIAL PLANNING
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Children and their education are extremely high priorities for many families. Many are aware that it can cost a fortune to support their children especially for higher education. The cost of higher education has increased dramatically in the recent years. This can result in a tremendous financial drain for a family with college age children.

How Much is Needed?

Generally, the following costs will be needed - tuition fees, books & supplies, travel costs of child including costs of travel of parents & family, and accommodation & food. You can estimate how much is needed using our education planning calculator. 

a) Tuition Fees
The cost of tertiary education can knock a sizable hole in your savings! See below chart:
 

Year	Malaysia	Australia	US	UK
2000	RM50,000	RM194,000	RM271,000	RM306,000
2004	RM73,700	RM285,000	RM398,000	RM451,000
2009	RM108,200	RM419,000	RM584,000	RM662,000
2014	RM159,000	RM615,000	RM858,310	RM973,000

b) Living expenses, books, travel costs

If the child is sent overseas, it depends on where. The costs of living expenses, books and travelling also vary significantly. 

For popular destinations like UK, living expenses can be GBP5,000 per year. This approximates to a cost of RM30,000 per year. For Australia, living expenses can be A$10,000 per year. At an exchange rate factor of 2.3, it can cost RM23,000 per year. For this economic reason, many Malaysian parents send their children to study in Australia even though the preference is to study in UK.
 

Impact of Inflation

Inflation does affect the education fund tremendously. The above is based on current rates. Depending on the rate of inflation and the period that your child will go to college or university, the amount could be even higher.

The longer time inflation is allowed to take hold, the higher will be the cost will be, hence the higher the education fund is needed. That's why there is a need to plan for a child's education plan as soon as possible.
 

What Financial Aid is Available?

These are some of the possibilities of financial aid available:

Government Scholarships
Through the Public Service department, the Government offers scholarships to eligible students. The number of scholarships offered are limited and there is keen competition for these scholarships.

Corporate Scholarships
These are offered by some large corporations and institutions. The competition to win such scholarships is high and only the better scholars are selected. The scholarships often come with bond to work within the corporation following graduation.

Private Foundation
Some private foundations offer scholarships. These institutions can be set up by family trusts, philanthropists or established corporations. Generally, there are conditions attached to such scholarships. Again, the competition is tough to win the award. 

University Scholarships
Some universities offer scholarships to overseas students. Usually only the best scholars have chance to win such awards.

Government Loans
For the fortunate few, there can be Government loans. Generally, priority is given to students from lower-income families. The competition to win such loans are stiff as it is usual for more exceptional scholars to have a winning chance.

Bank Loans
Such loans are possible however most ask for asset collateral, such as properties or stocks, to support the money given out. The interest rate charged can vary with the bank. It is very common to pay between 1.5% to 2% above current base lending rate for these loans. 
 

What other financial options are available to generate money for education?

Apart from cash withdrawal, through proper planning it is possible that the parent could have some investment made earlier years. Such investment could be the other financial options available to the parent when required.

Another most common option is that of financing the child from family savings. One of the sources is the withdrawal from the EPF savings when the contributor reaches 55 years old.

Another possible source and better solution would be from education plans. This allows you to withdraw funds when your child reaches certain ages such as 18 or 21 years old. One significant advantage of such plan is that should the contributor die or be totally and permanently disabled, the future payments due until the plan matures are immediately waived. The beneficiary will receive the benefits as defined in the plan, i.e., the child's education fund is secured no matter what happens.
 

How does the age of the child affect the strategy to save and invest?

It is generally agreed that parents should start the education fund planning as early as possible. This will be able to maximize long-term returns. The younger the child, the more time you have for compounding to help grow your money. 

For example, if you started with RM1,000 in Year One when your child is born, and the interest earned in your investment is 10% per annum - at the beginning of Year Two you will have RM1,100. If the same rate carries on year after year without the principal balances of each new year being touched, then the compounding effect comes into effect. Thus at the beginning of Year Three you will have RM1,210. By Year Nineteen, the amount will be RM6,116.
 

Conclusion

There is absolutely no right or wrong way of saving for a child’s education. But then, nobody did say that planning an investment strategy for a child’s education is easy either. What is generally agreed by financial planners is that parents need to take action – the sooner the better. 

If planned early, an investment fund for educational needs has a relatively long-term objective, and it is set up with the hope that the fund will not be needed in the meantime. Therefore, a less conservative investment vehicle seems justified in order to secure a more attractive investment yield. Generally, it would be unwise to speculate too aggressively, and the college fund should be just sufficient without being excessive.

Proper risk management is also very important. If parents die, the child may not even be assured of an education. Hence it is very important to safeguard the child's welfare should either one or both parents die or become incapacitated. And this can be safeguard through the a plan which incorporates proper risk management - such as an education plan.

The earlier you start your child's education fund planning, the more secure the funds will be when your child reaches tertiary education age.