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How to save up for your children's education

Pandu W. Soeprapto
Pandu W. Soeprapto

Banker, part-time teacher, and at-any-other-time writer

Jakarta  /  Fri, March 13, 2020  /  09:09 am
How to save up for your children's education

As education costs keep rising on an annual basis, it's best to start early in preparing an education fund for your children. (Shutterstock.com/ITTIGallery)

By Pandu W. Soeprapto

My wife and I, as well as many other parents out there, want the best for our beloved little angels.

We provide a home to protect them from the heat or cold, and as a place where they can freely share their joys, sorrows and creativity without fear of judgment. We provide a car and take them on adventurous, yet safe trips – almost always paradoxically along bumpy roads. We provide nourishing foods to support their physical and mental growth; clothes they can play in and run around anywhere they like.

On top of all this, we provide them with a good and proper education that will stimulate and nurture their minds, skills and passions, so they can thrive in this ever-changing, competitive life.

However, as they move forward in life, so does the cost of their education and related expenses, increasing at least 10 percent each year. This can leave some looking back, wishing they had started setting aside some money toward their children's education fund much earlier.

Here is an example of how quickly these expenses can grow. The current admission fee at an elementary school can cost up to Rp 30 million (US$2,063) per child, depending on the school, keeping in mind that there are still five years to go until your child enters junior high school.

Using the 10 percent annual growth rate mentioned earlier, by the time your child enters the sixth grade, the admission fee will have increased considerably to approximately Rp 48 million. This is just one fee; there are still monthly school fees that need to be met.

Is it discouraging? To be honest, yes. Nevertheless, it is a challenge that we have to overcome sooner or later for our children, who are often disobedient, but adorable nonetheless. So, no matter how ruthless the task may seem, tackle it with a smile.

As parents who are in the process of setting up an education fund for our twins, we can share two things that might help you determine the right educational path for your children.

1. Prepare early

The rule of thumb for achieving any monetary goals is to start early, as early as you possibly can. By doing this, you force time to be on your side. Having a longer time to prepare means that you can accumulate more funds and take advantage of the effects of compounding.

In my case, I started planning when the twins were born, although I wish now that I had begun even earlier.

All good? No. Life sure is unpredictable. Since starting the plan, I have experienced surprises and setbacks that have had unfortunate consequences on the fund. Thus, another benefit of preparing over a long period of time is that you will have the leeway to recover and rebound from adverse events.

If you begin preparing too close to the deadline, there may be not enough time to recover when unwanted things occur out of the blue. Worse, you might have to take out a loan and bear the interest, something which could actually be avoided. In the worst case, you will simply not have enough funds.

2. Where is the best place to invest?

The growth rate for education costs is considerably high. To be frank, not many investment instruments can generate consistent returns to match that figure, especially since the recent emergence of issues regarding the trade war and the coronavirus.

Ideally, it is better to invest in instruments that have potentially high yields. However, not everyone has the sufficient knowledge or expertise to engage in such investment activities, and investing in an instrument we don’t understand is not advisable, mainly because we don't know what affects its value.

Therefore, rather than becoming confused at the outset over where to put your funds, start investing in the instruments you know best. Along the way, you can use the time created by starting early to broaden your investment options to improve the returns of your investment portfolio.

And let's not forget saving: everything starts from saving. Be more efficient in how you save money to close the gap between your actual fund at end of the investment period and the real education costs you need to cover. There is no guarantee that the future will turn out as we hope.

So, start now. Learn and unlearn a lot; rinse and repeat until you discover what works best for you in preparing for your child’s education, so you can support them in soaring high toward their dreams. (kes)

***

Pandu W. Soeprapto is a graduate of the Bandung Institute of Technology (ITB) and Monash University in Melbourne, Australia. He is currently a corporate credit analyst, and is particularly passionate about teaching and writing. Find him on Instagram @pandu_wi_soe.

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Disclaimer: The opinions expressed in this article are those of the author and do not reflect the official stance of The Jakarta Post.