NOMPU SIZIBA: It’s well understood that a good education can be a game-changer in society. And, of course, here in South Africa, it’s known that the education outcomes at primary and secondary school levels have not been as positive as we’d hope as a nation. The challenges the country faces, which include high unemployment, are significant, especially as the way of working changes with the fourth industrial revolution, with those who have some form of qualification and experience already having to study further and to adapt to a changing world or run the risk of being marginalised as the digital working choo-choo-train chugs through the station. Saving for your child’s education is therefore key in being able to ensure that your child has a fighting chance of securing a decent future.
Well, to tell us more I’m joined on the line by Kenosi Magosha, the head of Client Solution Savings at Sanlam Personal Finance. Thanks very much for joining us, Kenosi. Just hit us with some of the stats in South Africa’s current education story; and of course affordability of good-quality education continues to be a real difficulty for many South African families.
KENOSI MAGOSHA: Yes. We find that most South African families are struggling to pay for education, and it’s still one of the top items they are spending money on. It’s quite a stretch, as you would have seen over the past couple of years, with things like the FeesMustFall movement, that education isn’t as important but the struggle to pay for it still remains.
NOMPU SIZIBA: Absolutely. So, you at Sanlam, you guys have commissioned a survey of people around education. What were the key findings in that report, and what sort of lengths are we seeing ordinary South African folk go to, to ensure that their children get the best educational chances possible?
KENOSI MAGOSHA: Among South Africans you’ll find that they believe that education is important. But what we found is that they also think that it’s the responsibility of government to pay for education. But there is also an appreciation that parents have a responsibility to pay for education itself. So, it’s just been a bit of a difficult thing of having to foot education now, but still save for education like tertiary education – which is important for employment purposes.
NOMPU SIZIBA: Exactly.
KENOSI MAGOSHA: Even though people are spending quite a bit on education now, they aren’t actually saving for education in the future, which is what will make a difference in terms of employability itself.
NOMPU SIZIBA: Just give us a sense of what the education inflation picture has looked like over, say, the past 10 years.
KENOSI MAGOSHA: Over the past 10 years typically we would find that inflation for education is more than the general inflation; you would find that general inflation is taken to be around 6%. So, typically we assume that we would see inflation to be about 3% on top of general inflation for tertiary education in particular. But that has dampened a bit in recent years because, with the pressure that is placed on the universities not to increase their fees, the differential from general inflation has narrowed a bit.
We see that inflation is hovering around 6% and 7% for secondary education. But it still remains high, because within that you would have seen the different types of schools that are included, which can range between 10% increases and 0% increases in some instances. So, it’s generally more than inflation, it’s generally more than what people actually get as salary increases as well.
NOMPU SIZIBA: Yes. The point that you made earlier is very important – that, even if people have access to “free education” they still need to be cognisant, down the line, that they may need to pay for their child’s tertiary education, especially if they are in that missing middle. Could you just explain to us the dilemma of people who are in the missing middle, and the fact they still have to go out and find their own fees?
KENOSI MAGOSHA: I think you would have noted that with NSFAS there is now a bursary for them, for people who are earning less than R350 000 a year. But then, if you are beyond R350 000 a year, you are not covered by NSFAS bursary scheme, which means you need to make a plan. The plan means that parents should be saving now for their [children’s] education in the future, or they need to take out loans to make sure their children have a chance to study.
But the reality is that we find that more than half of the youth today say they can’t afford tuition. As a result you find that only one in 10 are in tertiary education institutes – such as from the age of 18 to 24, only one in 10.
The numbers show that only one in 10 individuals is actually into tertiary education, which means that the prospects of employment are also affected by that.
NOMPU SIZIBA: This is where your expertise comes in, Kenosi. Clearly families need to consider saving for education as early as possible for their children’s various stages of learning. What do you advise? How soon should they start, and what sort of savings vehicles do they need to be thinking of using?
KENOSI MAGOSHA: The earlier, the better, because when you start earlier you can actually start making a dent with small contributions. The later you delay it, the more you will have to pay. Let’s take an example of a child still in primary school – if a parent wants to save for R600 000 to fund the dream in 12 years’ time, they need to contribute R20 000 now, per annum. If they wait until the child reached high school, that more than doubles to R50 000. So, the earlier a parent starts, the better.
What we’ve done on our side is that we focus on helping parents to get there, helping them firstly to appreciate how much it costs to send a child to university or a technikon, or to pursue any tertiary education. But what we also do is we help the parent to stay along the journey, because the education costs change every year. So you need to keep checking to see how exactly you are doing towards the savings goal that you set up.
We have something called the Goal Manager that helps our clients to stay the course, so that they are not surprised by the time they need to start paying for their children’s education, but are rather sufficiently prepared. Then they will know, okay, I’ve saved towards half of the fees, and for the other half I may need to arrange a loan or whatever to fund the education costs.
NOMPU SIZIBA: That R600 000 that you are talking about is a little bit of a thumb-suck, if you like, because you can’t anticipate what inflation is going to do down the line.
KENOSI MAGOSHA: Yes. That’s why it’s important to check in every year, like the Goal Manager allows you to do. If you are checking every year then there is less room for surprises. So that R600 000 gets firmer the further education gets, to the extent that inflation is controlled – which it won’t be, because there is also societal pressure on institutions to make fees affordable. But then what happens is that that annual check-in is quite critical to make sure you are not surprised and falling short, come the time to fund the education costs themselves.
NOMPU SIZIBA: Just in conclusion, Kenosi, I think our conversation is basically saying that parents cannot afford to have a pay-as-you-go attitude when it comes to paying their children’s fees.
KENOSI MAGOSHA: Yes. It will make things very difficult. As you can see, if most children are not able to attend tertiary education, that means the pay-as-you-go approach will limit the opportunity to study further.
So, starting early, sacrificing a lot for children today, just starting the habit of saving, helps you to get there, to just have that cushion.
One of the other challenges that you also need to think about is your retirement plan while you are trying to provide for your children’s education as well. So it’s so important to start planning for those things now and gradually go towards those particular goals so that you’ll have sufficient money to meet those goals and you can actually carry wealth to the next generation.
NOMPU SIZIBA: And of course with education it could possibly be the best investment you ever made in your child.
KENOSI MAGOSHA: Yes, because you can allow them to be entrepreneurs as well. I think that’s also a conversation we are not having enough of in our country – that education is not just about getting a job. It’s also about having the ability to see things differently and maybe create jobs for other people and solve the issues of unemployment that we are currently experiencing in our country.
NOMPU SIZIBA: Kenosi, thank you very much for your time this evening.