One of the greatest gifts you can give your child is a good education. It’ll equip them with the skills they’ll need to pursue a meaningful and well-paying career in the future.
Unfortunately, quality education doesn’t come cheap. As of 2019, the average college tuition fee hovers around P145,000 a year, according to an article cited by Inquirer.net. That doesn’t include other costs such as food, transportation, and extracurricular activities.
With the rising cost of tuition, you might be wondering how to save for your child’s college education. Fortunately, building up these funds is within reach, as long as you plan for it. Here are a few tips to get you on the right track:
1. Know Your End Goal
Because of inflation, the prices of goods and services increase over time. Unfortunately, this also means you’ll have less spending power as the years go by. No wonder our elders often tell us stories of how P1 used to be enough for a nice restaurant meal!
So factor in the cost of inflation when planning your funding goal. That way, you won’t be in for any nasty surprises down the line.
As a general rule, expect tuition fees to cost as much as 10% more each year. For example, if your kid’s dream college currently costs P100,000 a year, it’ll cost P110,000 the year after. If your child will be entering college 18 years from now, their first year of college will cost P551,991. This means that a four-year course will cost you a whopping P2,580,354!
2. Start Saving Early
There’s one way you can combat inflation: earning interest on your savings. With this in mind, it’s best to aim for compound interest over simple interest.
Compound interest is calculated based on the sum of your initial investment plus the interest you’ve already earned. For example, a sum of P100,000 with a compound interest rate of 5% will earn P5,000 on the first year. On the second year, you’ll earn interest on the total amount of P105,000 (original amount + first-year interest), which means you’ll get P5,250 instead of P5,000, bringing your total to P110,250 at the end of the year.
To explain just how powerful compound interest can be over a long period of time, let’s look at a sample scenario. If you start with a lump sum of P100,000 and leave it in a savings account that earns 5% annual compound interest for 18 years, your initial deposit will have grown to a total of P240,661. If you were to leave it to grow for even longer—say, 40 years— your initial deposit will have grown to an impressive P703,998.87 instead. So the sooner you start saving, the better.
3. Set It and Forget It
If you tend to spend your savings on things you don’t need, then make it harder for you to get to that money.
Open a new bank account for your child’s college fund, and make sure it’s only accessible via passbook. Make sure to deposit any windfalls into that account whenever possible.
Keeping your child’s education savings in a separate bank account will make you less likely to touch it.
You can even take it a step further by setting up automatic money transfers. Set your payroll account to deposit a set amount to your college funds account each month, making that money already inaccessible for your whims.
4. Invest Your Money
Starting a dedicated savings account is a good start. Unfortunately, most savings accounts only have an annual interest rate of .10% to .25%. That means your P100,000 will only earn about P1,000 to P2,500 per year.
If you want to get the most out of your money, you’ll want to take advantage of higher compound interest rates offered by other investment vehicles. You can choose from time deposits, UITFs, mutual funds, stocks, and cooperatives. Remember thought that investments such as these, while the return may be higher, may be subject to market conditions—so be forewarned.
Now, your P100,000 might earn 10-15% interest per year from an investment compared to a savings account. That’s P10,000 to P15,000 each year!
5. Get an Education Plan
Depending on your financial goals, an education plan could be the best way to save for your child’s college. These plans are specifically tailored to address your child’s future educational needs.
Take AIA Philam Life’s Future Scholar Education Plan, for example. It combines investments, savings, and life insurance into one package. It lets you receive guaranteed cash payouts once your child enters college. At the same time, it also grows your money through expertly-managed funds. The life insurance that comes with the plan covers you in case something unexpected happens to you.
The last thing you want to do is tell your kid that you can’t send them to college. Though it may be hard to make ends meet, setting aside a portion of your income for this will all be worth it in the long run. After all, there’s no better reward than seeing your child receive their diploma on stage.
You don’t have to go through this journey alone, though. If you’re still unsure how to save money for college tuition, we’re here to help. Take a look at our different financial solutions and let us help you find the plan that best suits your needs.
