In education planning, we are concerned with the education of our kids. We focus primarily on tertiary education as this part of education is usually the most costly. Furthermore, primary and secondary education are available for free or at a minimal cost in Malaysia. Nonetheless, if you choose to send your child to private schools for primary and/or secondary education, you need to include these costs in your plan.
Education inflation rate
The cost of education is not fixed but increases as time passes. The inflation rate of education cost for non-medical courses ranges from 1.7% (New Zealand) to 5.6% (Australia), according to Public Mutual University Cost Guide 2022 (Link). It includes both tuition fees and living costs. In Malaysia, the education inflation rate is estimated to be 1.8%.
OCBC bank has an online calculator to estimate your child’s education need (Link). It has options for science or medicine course and twinning/transfer programme to overseas. There is a total of seven countries: Malaysia, Singapore, Australia, United Kingdom, New Zealand, Canada, and United States. For the overseas countries, it includes the living cost but not for Malaysia. The calculator does not state the inflation rate but only provides the current cost and the future cost. Based on my rough calculation, the inflation rate ranges from 2 – 4.5%.
Foreign exchange risk
If you plan to send your child to overseas university, there is another consideration which is the foreign exchange rate. We cannot predict the future exchange rate, thus it is a risk if the exchange rate works against you when it is time to send your child to university. One way to overcome this is to convert and invest the fund in the currency of the target country. Nonetheless, this will entail another risk. What if your child does not go to the target country? Thus, you have to decide on which risk you would want to take when planning to send your child to study abroad.
Funding sources
There are a few ways to fund your child’s tertiary education.
Ideally, you have planned early and have accumulated enough fund for your child’s education. If you did not plan for the education fund, you might need to come up with the money from other avenues.
If you are still earning an income, perhaps you will still be able to sacrifice something and divert part of your income to pay for your child’s education. Otherwise, you might need to use your own savings or your retirement fund. However, I think we should look after our own welfare first before dipping into retirement fund. Let’s say you use up your retirement fund for your kid, so who would take care of you in the future? Do you expect your child to bear the extra burden of taking care of you financially? We all know that it is getting harder to earn a decent living for young people nowadays and the future might stay the same. Thus, it is best not to spend all your money on child’s education and have nothing to yourself.
So, if you do not want to spend all your savings on your child’s education, you can consider to ask your child to take an education loan. Having said so, you should only consider loan with low interest rate, especially those offered by government agencies such as PTPTN and JPA. If the interest rate is too high, it will be a great financial burden on your child in the future.
Last but not least, if your child is eligible, go for a scholarship. There are many scholarships being offered, you just have to look for it and make sure that your child’s result meets the requirement. If your child is able to get a scholarship, it will save a lot of money for you. However, this funding source really depends on luck and is not a reliable source to depend on.
Steps in education planning
1. Set the goals and objectives.
2. Gather information regarding the education cost and current resources earmarked for child education.
3. Analyse the information.
4. Develop education funding plan.
5. Implement the plan.
6. Review, monitor, and revise education funding plan.
As the education cost can be quite significant, it is better to plan early.
How can a financial planner help you?
I will evaluate your situation and help you to devise a plan to accumulate the education fund. I will help you to calculate the required amount of money and guide you to select the most suitable instruments to reach your goal. Furthermore, I will monitor the progress and make adjustment accordingly.
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Disclaimer: This post is for informational purpose only. You should use judgment and conduct due diligence before taking any action or implementing any plan suggested or recommended in this article.
