How to Build and Grow a Fund for Your Child’s Higher Education

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How to Build and Grow a Fund for Your Child’s Education

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The joy of having a child who lights up your life with hugs and giggles is priceless. However, the joy of providing that child with all their growing needs is also pricey. From diapers to digital devices to a diploma, parents must finance everything for their children during that long-haul journey towards adulthood. One of the biggest costs they have to bear is education.

According to an HSBC Group survey in 2017, Malaysian parents spend approximately RM110,000 on their child’s education from primary school up to university undergraduate level.

Diploma courses alone can cost more than RM20,000 with twice the sum for degree courses. That’s just for tuition fees to study locally, not overseas. Then you have to add living and travel expenses plus the cost of educational materials like books. And if you think RM40,000-50,000 is still within your reach, factor in annual inflation. By the time your child is ready to enter an institute of higher learning, that amount would have increased dramatically. And that’s only for ONE child.

Of course one can turn to common forms of financial aid such as scholarships and study loan schemes, assuming applications are successful. Parents can also withdraw a portion of EPF money for education purposes, but that shrinks retirement savings as well.

To avoid last-minute stress and major compromises when the time comes to pay those tuition fees, we highlight 5 options to help you build and grow a fund for your child’s higher education.

1. Fixed deposits and junior savings accounts

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If you make a head start and can put a lump sum away into a Fixed Deposit account (click here to know how they work), your money will accumulate gradually over the years with practically zero risk. The dividends are higher than a standard savings account and reinvesting these dividends into the principal amount is more beneficial in the long-term. Check out 5 ongoing FD promotions to further boost your funds.

However, it’s best not to put all your eggs in this basket. Gains are slow and banking solely on fixed deposits isn’t going to cover you from inflation losses.

You could consider opening a junior savings account for your child after browsing various banks to find the best long-term offerings (check out some great savings account options). Interest rates are comparable to fixed deposit accounts. Furthermore, such accounts offer more flexibility, a low minimum deposit and incentives like free personal accident (PA) coverage or cash rewards for excelling in exams. In addition, it’s an opportunity to inculcate good financial habits into your child.

Related: 5 Simple Things Young Parents Can Do for Their Children’s Financial Freedom

2. 1Malaysia National Education Savings Scheme (SSPN1M)

Screengrab of SSPN1M homepage

Previously known as SSPN, this scheme was introduced by the National Higher Education Fund Corporation (PTPTN), which disburses study loans. SSPN1M aims to help Malaysians adopt a savings habit for higher education expenses while reducing dependency on loans. There is no risk as savings are guaranteed by the government. Other benefits also include annual tax relief of up to RM6,000, free Takaful coverage and annual dividends. In the past years, PTPTN has declared a consistent dividend rate of 4% for SSPN1M.

In addition, the savings scheme offers rewards and incentives such as a free matching grant of RM500. This grant, allocated under the 2018 Budget, is still available until the end of 2018 but only to the first 500,000 eligible account holders aged between seven and 12 years. The RM500 is automatically deposited into the SSPN1M account without the need for any application. To grab this grant opportunity and to know more about SSPN1M, visit their website.

Related: Here’s How Working Moms Can Strike a Balance Between Office and Kids

3. Unit trust funds

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A popular investment tool for first-timers, unit trust funds are affordable, flexible and managed by experts tasked to increase a fund’s wealth. No financial knowledge or time needed on your part except to deposit money.

However, as unit trust prices can fluctuate, gains and losses are possible. How much risk you are willing to take depends on your financial health. But when your child’s future education is at stake, it’s best to opt for low to medium risk and maintain a long-term portfolio. Also, you’ll be well-advised to get complete clarity on risks involved, growth prospects, etc. before you invest.

Related: 5 Good Reasons Why Millennials Should Invest in Unit Trusts

4. Bumiputera options like ASB and ASD

Anyone holding Bumiputera status can consider investing in another kind of unit trust fund – Amanah Saham Bumiputera (ASB). Introduced by the government-backed Permodalan Nasional Berhad, one of Malaysia’s largest fund management companies, ASB is one of their top performing funds (check out our ASB FAQ). Low risk, low initial investment, consistency and good dividend returns make it a popular investment option. Besides adults, Bumiputera minors can also hold an account via an application by a parent or legal guardian.

An alternative to ASB is Amanah Saham Didik (ASD), another product from PNB designed to encourage parents to save and build their children’s educational fund. Likewise, with ASB, this ASD fund is applicable only to Malaysian Bumiputeras and shares certain attractive features such as minimal risk and affordability.

Fret not if you are a non-Bumiputera. Other investment funds are available to you under PNB with higher dividend rates than fixed deposits. Find out more by clicking here.

Related: All You Wanted to Know About Taking a Loan to Finance ASB Investment

5. Property

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Here’s a plan best reserved for those well-equipped to handle a big financial marathon. Although an uncommon strategy, investing in housing property can lead to attractive long-term gains and better options for your child’s future. Start early and you’ll have an asset that appreciates in value over the years in tandem with your children’s growth.

It’s far from cheap and easy to implement but if you can still afford it or if you can offset the costs (rental income is the norm), then you’ll be rewarded with higher returns than most financial investments, assuming you escape the Real Property Gains Tax. Once you sell the property to cover higher education expenses, you would even have enough funds for more than one child.

Also, don’t forget to check out our blogs on must-dos if you’re planning to buy a house, and things to consider if you’re planning to take a home loan.

Related: 7 Top Home Loan Options in Malaysia That Aspiring Homebuyers Must Check Out

Planning is the key

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Remember that perennial financial advice: plan and begin early. After all, you want to build a substantial kids education fund that will allow them to have better opportunities and reduce last-minute headaches. The more you put it off, the more it will cost you.

Apart from carrying out proper research, it helps tremendously to first estimate how much you will need for your child’s higher education. Some financial institutions provide nifty online education fund calculators. These can instantly work out the numbers for you based on data that you key in so do check them out in addition to consulting professionals for advice.

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