Education infl ationThe real cost of education

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Planning for someone greatEvery parent dreams of what their children will become one day – a doctor, an engineer, a chef. The potential of each and every child should never be underestimated, and neither should the importance of planning for his or her future education.

The rising costs of educationWe all know that education these days does not come cheap. Whether you’re considering

the cost of primary school, high school, university or technikons, there’s no denying

that the general cost of a quality education has risen substantially in recent years.

If your child was starting grade 1 at a private school this year*, it’s important

to know that you will have to spend over R1,5 million for their primary and high

school career. If you’re looking at a public school for your child, you’d need

to spend over R450 000. And if you want to send the same child to university

for three years, it could cost you about R350 000... don’t forget that all these

fi gures exclude the cost of books, stationery, travelling, extra-mural

activities etc.

Tertiary educationfee increases

South African infl ation rate

2006 8.8% 5.8%

2007 7.7% 9%

2008 8.1% 9.5%

2009 8.4% 6.3%

2010 7.9% 3.5%

2011 8.5% 6.1%

Average increase 8.2% 6.35%

As parents, education infl ation

is something we need to consider

when working out how much we

need to save to pay for future

school and university fees and

expenses. In the long term, we

can expect infl ation to be about

5% and so we need to calculate

the future cost of education based

on 9% per year fee increases.

Keep up with education infl ation Because the cost of school fees will grow quicker than your average salary, it’s

important to invest in a combination of asset classes or funds with the potential to

outperform infl ation e.g. equity and property. Money market accounts, bank deposits,

and fi xed income unit trusts often don’t reach returns of infl ation plus 2%. Which

means this type of investment would not be enough to do better than the rising cost

of education.

SmartMAX allows you to split your capital across a number of funds

managed by leading fund managers, without the hassle of individual

fund minimums. This diversifi ed spreading of funds and an annual

premium increase in line with education infl ation,

will help you to get returns in excess of education

infl ation. With a SmartMAX Education Plan, you can be

sure that you’re doing everything in your power to give

your child the head start in life that he or she deserves.

Why has planning for your child’s education become a necessity?One of the main reasons we struggle to save enough to cover the cost of school

and tertiary fees (and all those extras) is because of education infl ation. Essentially,

education infl ation is higher than South Africa’s offi cial infl ation rate (CPI).

This gap has widened from around 2% in the early 2000’s to as high as 4% recently.

Remember, you can’t count on fund performance alone. It is vitally important

to increase your premiums every year, in line with education infl ation.

This keeps you ahead of the rising costs.

*2012