Above-inflation increases in education costs and inadequate financial planning coupled with the changing nature of education leave many families struggling to put children through the private education system.
Discovery Life estimates that the present value of private education fees – including creche and tuition at a private school and a public university – is around R2.2 million per child.
Research, undertaken by the insurer shows education costs are being driven by the fact that children now start school much earlier with parents likely to spend around R200 000 on fees prior to primary school. As a result, parents are required to save R6 880 per month from year one in order to fully fund one child’s education from creche to university compared with R5 722 to fund education from primary school to university. The assumptions, which allow for supplementary expenses, are based on a net household income of R40 000 as well as a savings growth rate and investment return of 10%.
Gareth Friedlander, head of research and development at Discovery Life, explained that supplementary expenses – including devices, uniforms, sports kit and extra lessons – are likely to add at least 50% to education costs. In addition, parents face a “double whammy” of above inflation increases in education as well as stepped increases in fees as children progress through the schooling system.
“The funding for a child starting at creche today would typically be about 18% of your net salary. If your salary increases grow with normal inflation by the time your child is in matric – with nothing changing except the increase in education fees driven by education inflation – it has now risen from 18% to 72% of your net salary.
“It is quite an alarming statistic. [And] it has one of two impacts: either you downgrade the level of education facility that your children end up going to or you try to find some sort of other funding like loans, which have knock-on effects in other areas of financial planning.”
For many, the above-mentioned two options are an unfortunate reality due to inadequate savings for education by parents. Data from a July 2017 industry savings and investment report, cited by the insurer, shows that only 44% of parents and would-be parents are saving for education or have an education policy for their children’s future education.
According to Friedlander, opting to have children later in life doesn’t necessarily help parents fund their children’s education as they would likely have to retire at later ages and use part of their retirement savings to fund education costs.
Seeing an opportunity in the market the insurer has launched a new product, Global Education Protector, will allows for education needs to be protected – in the event of parents succumbing to severe illness, death or disability – and saved simultaneously.
The product options cover either public or private education in South Africa as well as a dollar-based option to fund international studies. According to the insurer, its Vitality shared value model can be used to fund up to 100% of a child’s tertiary education in that 10% is funded upfront while the remainder comprises a reward awarded to parents based on leading a healthy lifestyle as well as their Discovery Vitality status.