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A savings plan for your grandchildren's education

A savings plan for your grandchild’s education

A good education is more valuable than ever. One area where grandparents can make a real difference is with a savings plan for education. This will help to set grandchildren along a path towards becoming financially secure and independent.

Taking an active part in shaping your grandchildren’s lives and seeing them benefit can be hugely satisfying. With the cost of private schools and universities skyrocketing, providing financial support for your grandchildren’s education can have a significantly positive impact on their future.

If you decide to provide support, there are a number of options available to you, including paying for fees, and helping with the costs of uniforms, clothing, sportswear, textbooks, stationery, transport, lunch and snacks, extracurricular lessons, activities, pocket money and accommodation.

Grandparents’ savings plan for education

This guide will look at how you can set-up a savings plan for education for your grandchildren’s future:

  1. Start saving for education as early as possible
  2. Factor in rising ‘education inflation’
  3. Anticipated cost of education in South Africa
  4. Select an investment vehicle
  5. Education fund top-ups
  6. Leave a lasting (education) legacy

1. Start saving for education as early as possible

Education comes at a hefty price. When a new baby arrives in the family there’s a lot of excitement as everyone scrambles to ensure nappies, clothes, medical bills and day-to-day essentials are taken care of. What could be far more helpful in the long-term, is to set up a savings fund for the child’s education.

Even if you start small, starting early will enable you to grow the fund significantly over time, and to contribute to what will ultimately be the parents’ biggest expense.

This is where time is on your side because the earlier you start saving, the greater the effect of any interest earned on your savings and investments for your grandchild.

You could even consider investing a lump sum upon the birth of your grandchild (or godchild or niece or nephew) and ensure that it attracts compound interest from as early as possible. Nothing stops you from starting an education-focused investment even before your kids have children of their own.

2. Factor in rising ‘education inflation’

According to Statistics South Africa, the cost of education is rising year-on-year by between 8% and 10% – a level greater than the headline Consumer Price Index (CPI) rate of inflation. This means that each year it’s going to cost significantly more to send a child to school or university in South Africa.

Reports have estimated that if your grandchild started Grade R in 2017, they can expect to have paid between R1,3 million and R3 million, depending on whether they attend public or private institutions, by the time they attain a three-year degree from a university in 2033.

3. Anticipated cost of education in South Africa

It’s not just fees that are rising in South Africa; additional costs associated with sending your grandchildren to school are also escalating.

Current projections show that tuition, books, accommodation and other expenses – such as a computer, a smart phone and Cloud and Internet access – are already costing parents around R300 000 to R350 000 each year, per child.

Here’s an estimation of what you can expect education to cost in the years to come:

Cost of education in South Africa by 2022
  • Public primary or high school: R50 000
  • Private primary school: R152 000
  • Private high school: R200 000
  • University: R85 000
Cost of education in South Africa by 2030
  • Public primary or high school: R105 000
  • Private primary school: R255 000
  • Private high school: R405 000
  • University: R180 000
Cost of education in South Africa by 2035
  • Public primary or high school: R150 000
  • Private primary school: R365 000
  • Private high school: R585 000
  • University: R255 000

4. Select an investment vehicle

The best way to set up an education-related investment for your grandchildren is to speak to your banker about any offerings they might have. After a financial planning session with a professional from the bank, you can agree on the amount you would like to contribute, and how often.

These are two options to consider:

Tax-Free Savings investment account

A key savings mechanism that many South Africans don’t use is a Tax-Free Savings account. The main advantage of this type of account is that no dividends, capital gains or income tax is payable by your grandchildren, so any money you save in the account can grow faster than in a regular savings account.

You have to wait until you are a grandparent to open this type of account as you need the child’s ID number. Any money you save in the account becomes technically and legally your grandchild’s money and when he or she turns 18. This means they may decide to spend it on a trip abroad rather than use it to fund their tertiary education, so you need to explain to them how important it is that they put this money towards a degree rather than a holiday.

There are a few provisions regarding a Tax-Free Savings account that must be met, but if you speak to Standard Bank, we’ll advise you on a financial plan that keeps you within the annual threshold amount of R30 000 and the lifetime limit of R500 000.

Unit trusts and special education funds

Inflation-linked unit trusts will allow you to beat inflation as they have inflation-related targets as performance benchmarks. High fees combined with uncertain future markets might not make investing seem worthwhile at face value, but financial planning experts say that starting to save from as early as Grade 1, or even earlier, will help toward ensuring you ride-out market fluctuations.

Unit trusts are respected as ideal vehicles to use as part of any education savings plan, depending on your savings requirements. Unit trusts also offer flexibility if you require early access to your money. Speak to a financial advisor about the best Investment vehicle for you needs.

5. Education fund top-ups

While there’s nothing wrong with you, or uncles, aunts and godparents showering children with affection in the form of money or gifts, why not rather pool your resources and contribute to the child’s future education needs?

Instead of giving gifts over festive periods, birthdays and when they perform well at school, you can suggest that a number of you invest a lump sum together. Setting up an education plan will make it easier for you, your family and your friends to contribute toward the child’s education and future career.

6. Leave a lasting (education) legacy

One of the best ways to guarantee your grandkids’ education is to name them as beneficiaries in your Will. Upon your death, they can inherit funds to be used toward schooling or tertiary education fees. You can even set up a trust to ensure that your grandchild receives funds or inheritances at particular stages in their lives.

AFinancial Planning expert can discuss these situations with you and can help you determine the best way to leave a lasting legacy.


Next step

Visit our Savings and Investments page for more information and solutions to help you save. Or use the comments field to chat to customers and consultants in the Community about tax-free savings.