Education plan–The process (not the product)
Education planning in truth is no rocket science
“[Kids] don’t remember what you try to teach them. They remember what you are.” – Jim Henson, It’s Not Easy Being Green: And Other Things to Consider
Our children will probably forget a lot of things they learned in school, but for sure they will never forget and always be grateful to their parents for giving them the opportunity to be educated. As responsible parents, I’m sure we all want to afford that opportunity to our children.
Education planning in truth is no rocket science. Just think about this acronym: PII—Project, Insure and Invest.
Project. I studied college at probably one of the more expensive schools in the country. Around 2003, my annual college tuition on a full load was about P100,000/year. Just recently, my brother-in-law graduated from a similar course and during his four-year stint in the same school, his annual tuition reached P180,000/year. Between 2003 and 2013, the average annual rate of tuition hike was at around 6 percent. That is quite a conservative rate already since tuition can increase by as much as 10 percent in a year. Knowing the current tuition and average rate of increase is just half the battle as our real goal is projecting what the tuition would be by the time our children starts college. Using the future value formula in a financial calculator/Microsoft Excel, and assuming that our children will start college 18 years from now, college tuition by 2031 on the conservative 6-percent rate of increase would be: P514,000/year (at 8 percent: P720,000; at 10 percent: P1 million). If we multiply it by four years, total college tuition can amount from P2 million to P4 million. The number may seem scary, but with a proper plan in place, this value will not be as daunting.
Insure. Insurance is probably one aspect that is most overlooked when it comes to education planning. The purpose of insurance is to protect our dreams and goals, in this case it is to protect our dream of giving our children the opportunity of having a good education. Assuming we don’t have insurance and we go directly into investing. If we pass away while our child is just in Grade 2, who will pay for the tuition while the child is in the middle of K to 12? Who then would do the investing for us? Can your spouse continue paying for the tuition at the same time investing for college? What then happens to our dream of a college degree for our children? It dies with us. For these reasons, insurance is more important than investing.
How much coverage would you need to protect the education of your child? A coverage amount equivalent to the total K to 12 tuition plus the total college tuition. Again, the value may seem overwhelming, but you’ll be surprised that there are a lot of insurance products that are cheaper than you think.
Invest. There are a lot of ways to achieve your education dream for your child. It’s just a matter of knowing how fast you’d want to achieve it and how much risk you are willing to take. For one, you can save P110,000 for 18 years without earning any interest and achieve P2 million. If you’d like to invest and do a lot of legwork, starting a business could be an option as you can earn from 20 percent to 40 percent in a year, but the risk in a business is quite high as many start-ups don’t even make it through five years. Finally, in case you’d like your money to work for you, going into different investment instruments such as the stock market, pooled funds (mutual fund, UITF, VULs) and bond market could be your options. Returns/yields from these instruments on the average can go between 6 percent and 15 percent annually. Assuming you decided to invest in these instruments and you earn an average of 8 percent a year, you’d need to invest just P60,000 annually to be able to reach P2 million in 18 years. However, much like in any investments, there are no guarantees that’s why reviewing the investment plan would a key step to take in the process.
****
Jeremy Jessley Tan is a Registered Financial Planner of RFP Philippines. He is currently a Wealth Portfolio Manager for one of the leading insurance companies in the Philippines.
Source: http://businessmirror.com.ph/index.php/en/business/banking-finance/17148-education-plan-the-process-not-the-product
Comments
2,763 total views, 1 views today
Social