Child Education Savings Plan: Giving Your Children a Bright Future

Tertiary education is expensive irrespective of whether one’s child attends a private or a public school. Unfortunately, many parents get to grips with these unpredictable costs when it’s too late.

As a result, they end up panicking as the child grows up or are forced to fund everything out of their day-to-day expenditure.

Education fees can be challenging to handle, especially with a pending mortgage and other utility bills. So, the question is, how does a parent or guardian avoid such scenarios while preparing to pay for tuition, especially with the looming uncertainties of life?

What is an education savings plan?

An education savings plan is a specialised investment account that enables a parent or guardian to save for their beneficiary’s education expenses over a defined period. For example, elementary, primary, secondary, and tertiary public or private school tuition. In Malaysia, education savings plans are usually utilised to ensure enough money to pay for a child's university fees.

How does an education fund work?

Anyone can open an education fund. However, such a fund is usually established by parents, siblings or grandparents on behalf of a child dependent. In some territories, people who regularly deposit into education funds are eligible for tax deductions for their contributions.

Mostly, the money deposited in an education fund grows on a tax-deferred basis until it’s withdrawn. Fundamentally, there are two main types of education funds:

Prepaid tuition plans: Prepaid tuition plans enable the depositor or account holder to purchase credits at participating universities and institutions for future tuition dues and mandatory fees at current market prices for their beneficiary. Unfortunately, most prepaid tuition plans do not apply to elementary and secondary schools.
Education Savings Plans: Education savings plans are special investment accounts to save for the beneficiary’s future higher education expenses and mandatory fees.

For both plans, account holders/savers can usually choose an investment they want to invest in as the fund grows. In most cases, these investment vehicles become more conservative as the beneficiary gets closer to university age.

Benefits of a child education fund

Education funds come with several advantageous features for the policyholder and beneficiary. For example:

Tax-deferred growth.
Tax-free withdrawals.
A perfect blend of investment and savings.
Flexible plan locations.
Encourages disciplined and long-term savings culture.
Easy to open and maintain.
Tax-deductible contributions.

How do you plan an education fund?

A sufficient education fund doesn't happen on its own. Rather, it requires the initiation of several intentional steps from the saver to curate a plan that will comprehensively cater to the beneficiary's future education needs.

Define and decide your monthly budget. List all your assets and liabilities to know your financial standing and plan accordingly.
Start investing as early as possible to give yourself a head start in planning your beneficiary’s higher education. This also helps give your portfolio the power to compound faster.
Know the approximate cost of the education you desire for your beneficiary. This will enable you to estimate how much needs to be saved monthly to achieve the desired goal.
Avoid investments with low returns with smart asset allocation and investment.
Always keep an additional long-term investment option.
If you can, get life insurance in case of untimely death or an accident that impedes your physical ability to earn.

Why is education fund planning important?

If you’re considering starting an education fund for your child, here are some reasons to do so as soon as possible:

First-class education guarantee

An education fund allows you to provide your beneficiary with the education they need, regardless of future recession or political instability.

Peace of mind as a parent is everything, especially when you desire for your child to potentially pursue professional courses like; medicine, architecture, engineering or law.

High cost of education

Higher education costs are unpredictable and constantly changing as technology, and educational tools evolve. If anything, the cost of specialised courses will likely increase in the future in tandem with rising living costs.

An education fund can relieve this burden and serve as a buffer for unpredictable education costs.

Protection against uncertainties of life

Life as we know it is underpinned by uncertainty. From disability to death, we cannot control the future. However, we can at least control how we prepare for uncertainty.

Child savings plans and insurance provides peace of mind knowing that your beneficiary’s next level of education is taken care of, regardless of any uncertainty life throws.

Child education plan Malaysia

Although primary and secondary education is free at government-run schools in Malaysia, public universities charge a minimal fee. Additionally, many parents opt for private colleges and universities to avoid their children having to sit for the tough Sijil Tinggi Pelajaran Malaysia (STPM) exams.

Thus, tertiary education in Malaysia can amount to quite a lot, especially if one decides to attend a private institution or pursue their education abroad.

Fortunately, Prudential’s Child Education Savings Plan allows savers to top up their education-saving plans from time to time, per their children’s aspirations. This facility also amplifies one’s savings into an insurance cum investment plan, giving them desired returns to nurture their beneficiary's dream for higher education.

Conclusion

As soon as your child is born, their learning journey essentially begins. They will have a lifetime of potential ahead of them. One safe way to support their goals and milestones is via an education savings plan.

So, consider contributing to an educational savings plan that can help ensure your child’s future education. The sooner you start, the further ahead you will go to provide a strong foundation for them to succeed.