Tuesday, 4 February 2014

How Much Education Fund To Save For Children?

In financial planning, children's education fund is an important part of it unless you don't wish to have a child, or do not have a child for some reasons.

This education fund is for their tertiary education (pre-U & university/college) when they graduate from secondary schools.

How much should parent save for their children education funds? Is it RM50k, RM200k or RM500k?

Of course this depends very much on which courses and where the children want to study.

Here are some info from StudyMalaysia regarding average tertiary education cost in Malaysia's private colleges & universities.

       Pre-U studies in private education institution

       Bachelor's Degree (Undergraduate) in local private Uni

       Bachelor's Degree in foreign Uni branch

       3+0 in local private college/Uni

       Twinning Degree

       MBA in Public Uni

       Comparison of tuition fee & cost of living

To estimate the tuition fee, I think it is unwise to take the average value as there is 50% chance that the fund may not be enough to a great extent. However, it is also not practical to assume that our children will want to study medicine.

So for me, I will estimate the current pre-U tuition fee at RM25k and degree tuition fee at RM90k. However, there will be some other miscellaneous fees besides tuition fee. I'm not sure how much is it but I'll put in extra RM20k.

It is likely that the child will need extra living expenses as they will stay away from their parent during the study. They need accommodation, food, transport etc. If monthly cost of living for them is RM1000, then 5 years will be RM60k.

The total cost will be RM195k. If we follow the total cost of RM35k per year for Malaysia in the last table above, it will be RM175k for 5 years including pre-U. So it is quite close to my calculation.

Don't forget about inflation as well. How much are the tuition fee and cost of living 10-15 years later? 

I predict that more foreign universities will set up their branch campuses in Malaysia in the future. So this means more competition and hopefully the tuition fee won't increase too much.

     University of Nottingham Malaysia campus

As for cost of living, it will certainly increase at about 3% rate per year. I'll take 30% increase in overall cost in 10 years time.

So the overall cost of tertiary education + cost of living will be RM195k x 130% = RM250k for one child.

If you only have 10 years to prepare for RM250k, you need to save RM1200 a month in an investment that pays consistent 10% return annually, which is not easy at all.

If you plan early even before you have a child, you can save RM600 a month in an investment that makes 5% return annually for 20 years to generate RM250k, which is much easier to achieve.

If your child wants to study abroad, then you are expected to pay much more than that.

If you have more than one child, then there will be more headache...

If you have many children and all of them want to study abroad, then you better pray for scholarships or work til you die, unless you earn big bucks.

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