SENDING YOUR CHILDREN TO STUDY ABROAD

As a father of three girls, aged between 8 and 13, and with a baby boy on his way, financial literacy and planning for the education of my children is something that is very important to me. Amongst my clients, I have also noticed over the years that it is fast becoming a trend for those who have the means, to send their children to study overseas as they seek to provide their children with the best possible education.

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The 2017 Knight Frank Wealth Report found that nearly half of the respondents with clients in Africa (47%) strongly agreed that wealthy families are choosing to send their children overseas for their education, while the global average is 28%.

This is a natural trend as international travel is far cheaper than before and together with technology, the Internet and social media, it is making the world far more integrated and a global village.

What should you consider?

Although many degrees can be done in three years, you should plan for four years’ worth of education, as most students only manage to obtain their degree over four years. If your child does manage it in three years, they probably deserve the honours year.

Whether your child is studying locally or abroad, you often also need to provide for their living expenses and accommodation.

Looking at the cost of universities in South Africa, the approximate cost for a three-year BCom degree at the University of Cape Town (UCT)is around R169 900 per annum, including tuition, accommodation and other relevant costs.

UCT is one of the more expensive local universities compared to the other larger universities in South Africa but it is also important to note that you will pay different amounts for different courses. An Engineering or Medical Degree, for example, will cost more than other degrees. So, a more expensive degree at one of the less expensive local universities will be similar in cost overall.

If studying abroad, parents will also have to consider living expenses. The Australian and UK Student Visa does provide for students to work part-time for up to 40 hours each fortnight but it would be very difficult to rely on this solely, so provisions would have to be made.

Another factor to consider if your child decides to study offshore is the cost of a return flight and perhaps more if they want to return home over the holidays.

Local vs offshore: how much will it cost?

The table formulated below depicts the annual cost of educating your child at a local university compared to a university overseas, as derived from university websites.

I have depicted UCT as the local university and compared it to three offshore universities, namely the University of Western Australia in Perth, and Oxford and Harvard in England.

However, it would be inaccurate to simply compare tuition fees. There are many other expenses to consider when sending your child to live overseas whilst studying. Therefore, I have also included related expenses like accommodation, meals, entertainment, flights and other expenses.

You also need to consider the living standard of your children as an overseas student. Will it be at a higher cost or will they have to adjust to a cheaper cost of living, hence, the references to the costs in the table being either at a higher or lower end?

To be able to save for this, depending on your child’s age, you’d need to make a capital investment per child of:

  • The above table includes the following assumptions:
  • Education costs escalate at 10% per annum in Rand value
  • Monthly savings contributions escalate at 6% per annum
  • The net growth rate of 9,5% per annum (Gross return 12% per annum, investment costs 1,25% per annum and average Income Tax rate of 30% working out to 1,25% per annum).
  • Currency rates (GBP to ZAR – 1/17.54 | USD to ZAR – 1/13.00 | AUD to ZAR – 1/10.53)

When making the necessary provision, the possible currency fluctuation of the Rand must be considered and planned for accordingly.

Should the Rand weaken in the longer term by between 5-6% per annum, this would simply be the inflation differential between ourselves in South Africa and the first world.

So, if overseas, the cost increases annually by 4%. Our costing above using an annual escalation of 10% will, therefore, still work out the same. As the costs of tertiary education increase by 10% per annum currently in South Africa, the cost gap between educating your child locally and abroad would generally remain largely the same.

If the Rand had to weaken materially and you are saving in Rands, it would mean you would be short of your savings goal. Therefore, it makes sense to have your savings aligned to the nature of the goal offshore by investing offshore and thereby hedging out the currency risk as early as possible in your savings plan.

Accessing international education locally

If these expenses are prohibitively high to get your child an education overseas, you could consider the growing alternatives where overseas universities are looking to have a presence in South Africa. You can already consider Monash University from Australia, which has a satellite campus in Johannesburg where the tuition costs R70 000 a year and optional residence is approximately R50 000 per annum, depending on the degree.

Leading international institutions, such as Harvard, also provide shorter and postgraduate courses over the Internet, and these options are increasing by the day.

How do you plan for it financially?

Education planning is only one of the goals you need to consider in your financial plan. You can’t look at education planning in isolation, even if it is your number one goal and priority right now. You need to look at your entire lifestyle financial plan and decide how much you are going to allocate to education planning.

To do this, you need to have a clear understanding of what is important to you and what your desired lifestyle and goals are—you can’t look at one aspect in isolation. These goals also need to include the likes of your travel, recreation, home, car and retirement goals (illustration below).

By completing the full circle and determining all your lifestyle goals, you will be able to determine the level of investment return that is required for each goal, including your child’s education, based on your current financial circumstances.

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