September 24, 2009

Putting your child through university can be a big financial strain


PAYING for tertiary education is a major expense and parents do need to plan ahead if they want to help their offsprings avoid running into debt right after getting their scrolls. With Hari Raya just around the corner, I’m thinking we should encourage the children to put their duit raya stash into funds for their education.

Just remember that every bit counts. It pays to start early if you are hoping to have a healthy pile by the time the children finish school and are ready for higher learning.

But putting the extra cash into bank deposit accounts may not yield the best returns, especially in the current low interest rate environment. To beat inflation, your savings need to work harder.

Unit trust is a popular investment product that traditionally gave higher returns compared to deposits. However, be aware that the performance of equity funds usually mirror the stock market’s volatility in the short term.

Another option is to buy units in fixed-price funds offered by Permodalan Nasional Bhd. These include the recently launched Amanah Saham 1Malaysia. While the AS 1Malaysia lacks a dividend track record, similar funds by PNB have boasted annual returns of above 5% over the past years.

In the words of PNB president and group chief executive Tan Sri Hamad Kama Piah, PNB’s fixed-price funds are like bank deposits, but with higher returns.

Probably the best thing about investing in unit trust is that these funds can be held under your own name, which give you complete freedom to decide how to best use the money.

Who knows, your child may be one of those lucky enough to land a full scholarship. That would leave you with a tidy sum multiplied over the years by compound interest, now free to be spent on that long delayed vacation to Europe.

Apart from investing in plain unit trust funds, there are hybrid funds that combined specific financial goals with some form of insurance coverage. These investment-linked education plans normally mature around the time your child starts studying for a university degree.

But if you really want to put away some money in a safe place for that specific purpose, then the National Education Savings Scheme (better known as SSPN, the abbreviation for its Malay name, Skim Simpanan Pendidikan Nasional) is a suitable option.

Created by the National Higher Education Fund Corp, the SSPN is fully guaranteed by the Government and comes with eligibility for an annual tax relief of RM3,000.

The manager of the scheme offers a “competitive dividend rate’’ and will match up to RM10,000 in grants for those in the lower income group, according to information available on its website.

The money kept in SSPN is also less open to possible “abuse” by savers, with withdrawal limited to only once a year and the amount not exceeding 10% of the amount saved or RM500, whichever is lower.

A full withdrawal is allowed only if the child is accepted into any institution of higher learning, or due to death.

So how much does a university degree cost? And how much do we need to save?

Tuitions fees in the country vary, depending on the university and the course. Undergraduate programmes start from less than RM2,000 a year to above RM10,000 at private colleges. Fees for foreign university degrees cost substantially more.

On top of that, the student needs to pay for living expenses. These include rent, food and transportation. The total cost for tuition fees and living expenses are estimated to be at least RM15,000 a year. Thus, a three-year programme will cost RM45,000.

Having cash in hand before the child enters university will save costs. Borrowed money comes with interest, and the repayment obligation can be a huge burden for the young graduate just starting in his first job.

Saving a portion of the children’s duit raya today will go a long way in helping them manage their future finances.

Source: TheStar

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