3 Ways to Save for Your Child’s University Education

Welcoming a baby can be overwhelming for new parents. Along with the joy and excitement, comes the responsibility to feed, clothe, care for and educate your little bundle of joy – for the next 20 years.

Your child’s near-term needs, such as milk, diapers, toys, outfits, medical appointments, insurance and many other things cannot be avoided. At the same time, you do not want to neglect planning for his/her needs in the long term, such as a university education – which can help with securing a fulfilling career.

At first glance, the cost of your child’s university education may seem daunting, costing up to $50,000 in local universities, and climbing to close to $100,000 or more for foreign universities.[1] Furthermore, this cost doesn’t account for inflation and you don’t have to be a time-traveller to know that the cost of a university education will be significantly higher by the time your child grows up.

It’s not all doom and gloom. The good thing is that you have close to two decades to plan for it at the birth of your child – so start early. A good plan will ensure you are able to not just save your money over 20 years, but use the time to grow your money and take advantage of compounding returns.

Here are three ways you can grow your savings for your child’s university fees.

A monthly investment plan requires you to put a regular sum of money towards an investment each month, as well as reinvest any dividends or returns received from your investments. Typically, you can choose to invest in stocks, exchange traded funds (ETFs) and mutual funds or unit trusts via this method.

To invest in stocks and ETFs, you can use one of the four brokerage firms that offer these plans in Singapore, namely OCBC Securities, Maybank Kim Eng, Phillip Securities and via the POSB Invest-Saver plan.

To invest in mutual funds or unit trusts, you can choose to go with fund management firms or even robo-advisory firms.

As most people deem bonds as safer investments than stocks, you may prefer to channel your child’s university education fees to bonds.

Bonds pay out annual coupons that cannot easily be reinvested at the same rate of return. This should not hinder you from ploughing that money back into similar bonds. Another way to strengthen your bond portfolio is to stagger its maturity term and diversify the type of bonds you buy.

By staggering the maturity term of the bonds that you invest in, you are able to better space out the time period where you will receive your original bond investment. You can then reinvest it back into newer bonds. By doing so, you negate the potential of locking in poor rates but also exceptionally high rates, leaving you with an average rate that is generally in line with the market.

Diversifying your bond portfolio is just as important as it allows you to invest in riskier bonds that pay higher interests.

While you can invest your money in the Singapore Savings Bonds (SSBs), which are issued by the government, your returns may diminished over the long-term. Riskier bonds such as corporate bonds and even peer-to-peer lending may have a part to play in your portfolio if you wish to grow it more quickly over the long-term.

Certain savings products offered by insurers in Singapore give you an option to contribute a regular sum of money each month for up to 20 years while also protecting you against scenarios where you can no longer contribute to this fund. This is mainly in the unfortunate event of disability, critical illness or death.

Along with saving you time and effort in DIY-ing your own investments, you are also protected against uncertainties life may throw your way. Products such as the AIA Wealth Pro Advantage offers an all-in-one solution that gives you added peace of mind.

With expert guidance from Mercer, a company with over 40 years of experience providing investment advice, and the option to purchase riders that can cover you for critical illnesses, disability or death, you can lean on AIA’s innovative solution to protect your child’s future regardless of your well-being.

While the burden of planning and paying mainly falls on the shoulders of parents, you could also involve your children in the financial planning process. This may help alleviate stresses on your own finances as well as get them to better appreciate money matters from young.

You could start a university education fund that they are aware of. Get them to contribute a small part of their pocket money towards it and gradually, any salary they may receive from part-time work.

You could also plan for student loans to be part of the payment process. In some ways, getting your children to be responsible for their education may actually be beneficial for them, as it would allow them to better appreciate the opportunity of having access to education. This is as opposed to letting them coast through university without realising just how important (and expensive) their education can be.

The most important thing is to have a plan set in place early so you do not find yourself in an unexpected situation when the time comes.

At AIA, we encourage our clients to ask themselves this simple question “What’s your why?”. The answer will lead you to ensuring these important areas in life are adequately protected and looked after.