Education Fund: The Most Valuable Gift

Children's education is one of the most valuable gifts that parents can give to their children. In a world filled with challenges and responsibilities, providing quality education for children is a cherished aspiration and dream. However, financial constraints can often be a barrier.

In today’s world where competition to secure a scholarship or a place in Public Universities is very stiff, we can’t wait until after Sijil Pelajaran Malaysia (SPM) before deciding on how to pay for our children's higher education.

Do we want to let our children depend solely on loans to pursue their studies, and later start their life with debt or do we want to help reduce their burden by building an education fund?

This fund should be enough to support our children in their journey to achieve their dreams, including tuition fees and all other related expenditures such as books, accommodation, and daily expenses.

To ensure that we have enough money in the fund, the crucial step is to start investing and developing the fund since the birth of the little one, so that we can enjoy the benefit of compounding interest.

Remember, every small step and effort that we pour into building the fund, will bring us closer to helping our kid to realize their dreams.

1. Set Education Fund Goals

Before starting the education fund, it is essential to clearly define how much do we want to have in the fund when our kid reaches 18 years old. You can decide the number by doing some research on what is the most popular course which you think is suitable for your kid.

Of course, you can change the course accordingly to suit your kid's interest in the future. It may be a moving goalpost, but what is essential is that we start building the fund as soon as possible as the longer we invest, the bigger the fund could be.

2. Estimate The Cost of Higher Education

To ensure that our projection is accurate, we need to make some study about the course such as cost at different universities, study programs, locations, and level of education.

The table below shows an estimate of current education costs for degree levels at public and private universities, according to the study program:

However, bear in mind that the cost of education will change over time due to inflation and the university's effort to increase the quality of its programs. Assuming an average annual inflation rate of 4%, the fees may increase by the amounts shown in the schedule.

Considering the escalating costs of education, it is advisable to start investing as early as possible, even if only RM50 per month. The earlier we start, the lower the monthly investment required, making it less burdensome.

3. Open An Investment Account for Your Child

Building an education fund requires a continuous, long-term commitment as it will take at least 18 years if we start the journey from the first day our kids are born.

As such, it is very important for parents to start investing with an affordable amount which will not burden their finances to ensure consistency.

Choose a low low-risk investment instruments such as Amanah Saham Bumiputera (ASB), fixed deposit or any fixed-price trust unit offered by ASNB.

4. Determine Monthly Contributions Which are Within Your Means

Assuming that you have invested RM100 monthly since your kid is born. With an average annual dividend of 5%, your investment could grow to around RM34,700 when your child reaches the age of 18. What is important is that, for the money to grow, you can’t withdraw the money invested including the dividend.

If you have more than one kid, you can allocate RM50 or lower for each child, as long as you build the fund for each of them. With RM50 monthly, you can have an accumulated investment of RM17,333 when your child reaches the age of 18, assuming the average annual dividend remains the same at 5%.

In addition, you can also use their children's money, especially from festive, rewards and gifts as this allows the fund to grow faster.

5. Review Your Fund Strategy Every Year

It is important to be flexible and adaptable to changes. Continue to discuss with your kid on the strategy as their interest might change along the way before they reach 18 years old. It will help you to have a more realistic objective in terms of the numbers that you need to accumulate.

That amount accumulated may not be large enough to cover the entire cost of our children's education, but it can still alleviate their monetary burden and help them to reduce the amount of loan they need to take.

In the process of building the education fund, do not forget to teach your children about the value of money, as it will help them to appreciate the most valuable gift that you give them, which is education.

It is crucial to educate our kids about financial planning and investment as they need to manage their expenses on their own once they start living their student lives.

Start them young and each of them will thank you later in their life as they realize that their dream is not cheap and requires a large amount of money to be materialized.

Tips for Success in Building an Education Fund:

1. Start to build an education fund as early as possible. This will allow you to enjoy the benefit of compounding interest
2. Low-risk investment is suitable for education funds as it is for the long term, and you will not face the possibility of capital loss.
3. Your strategy must be flexible and adaptable to changes as the cost of education can easily change, and so does your kid's interest.
4. Without education funds, your kid will need to get a loan to pursue their higher education, and this will result in them starting their life in debt.