Saving for your children’s university and college fees is something that ideally needs to be started when your child is very young. Here we offer some suggestions on how, with good and early planning, college fees can be saved without tipping the family finances over the edge.
Saving for college is no different from any other financial goal in that it needs a plan. Your starting point is where you are today and what you have accumulated so far. Take an honest look at your current financial situation. From there, start to make some guesses as to how much you may need and when you will need it (the latter being the easier bit). Then, with the help of an online calculator, you can start to work out the monthly savings needed to get you to where you want to go.
There are lots of online tools that can help you calculate how much you need to save. There is a particularly good one on the FINRA website.
Having conversations early on with your child is critical to assessing how much you may need. Is there a burning desire to attend a top US university, or will they look to you for direction on where they should go? How much might you be able to fund and how much are you expecting them to fund themselves? It is important to have open and candid discussions with your children so that they have an understanding of the expectations being placed upon them.
If you are struggling with where to begin, try starting with 1/3, 1/3, 1/3 principle; with you covering 1/3, the child being responsible for 1/3 (either through part-time work or student loans) and 1/3 being raised from scholarships or grants. If the plan involves your child taking responsibility for part of the funding, you will need their participation well before college starts. Keeping grades up and researching the scholarships takes work and dedication. Saving earnings from their part-time summer employment takes discipline. Creating a plan early on and sitting down to revisit it regularly is critical to success.
For many in Cayman, the US is a logical choice, simply because it is closer. However, for both Caymanian and expat students, the UK is considerably cheaper. In the US, tuition fees tend to be between US$29,000 and US$55,000 per annum, with living costs adding another US$20,000 to US$30,000. In the UK, a Caymanian student will pay the local UK tuition fees of around £9,250 per year, with another £10,000 per year for living costs (not including flights to and from the UK). An expat student will pay ‘overseas fees’ of between £12,000 and £35,000 per year depending on the degree (lab based degrees, including Maths, incur higher fees). The fees for the UK are still a little over half of the cost of the US. Of course, adding another dimension to this is the fact that many parents will have two children (or more) overlapping at college at the same time. See ‘Applying to University or College’ for more on the costs involved.
How Much Should I Save and for How Long?
The reality is, the earlier you start the less you have to save each
month. Growing your money at more than the rate of inflation is really important, as over time inflation erodes your purchasing power and means that you have to save more to get to the same point. Consider investing in the stock market, however, it is important to consider your time frame before jumping in. It is impossible to know whether the stock market will go up or down in the short-term, and therefore it is only a sensible option if you have some years ahead of you. Time enables you to ride out the ups and downs and benefit from the long-term growth.
It is never too early to get started. There is great power in making small and regular contributions over a long period of time.
The tables show how much money you would need to save and invest each month to send your child to university in the UK in 6 years, 12 years and 18 years, given different growth scenarios. This takes into consideration the current cost of tuition and living at GBP19,250 and assumes they increase at 3% per annum.
As you can see, you have to save a lot less per month if you give yourself more time. Growing your money at more than the rate of inflation is really important, as over time inflation erodes your purchasing power and means that you have to save more to get to the same point. Opening an account at Credit Union (for those who are eligible) will enable you to generate interest in the region of 2%-3% per annum. To grow your money at a higher rate, you will need to consider investing in the stock market. However, it is important to consider your time frame before jumping in. It is impossible to know whether the stock market will go up or down in the short-term, and therefore it is only a sensible option if you have some years ahead of you. Time enables you to ride out the ups and downs and benefit from the long-term growth.
One of the most important pieces of advice is to ensure that your college savings plan is considered alongside your other financial goals: retirement, caring for elderly parents, paying off mortgages, having emergency cash balances, etc. To put your college savings in context, it is worth seeking the advice of a professional financial planner. A good advisor will help you create a plan that is right for you, your priorities and your life. Look for someone who is dedicated to education. They will recommend the correct assets to invest in (investing in the stock market is not for everyone), and more importantly, they will act as your accountability partner to keep you on track over the years to come.
As a final note, remember that your financial security is important too. Money is emotional and it is easier to give freely, without resentment or blame when your cup is full (or being filled). Money is not love, and love is not money. Teaching your children good financial planning practices will set them up for life, and help them pay off any student loans more quickly and efficiently. Sadly, there are no loans available for retirement. For that, you simply have to save!
Who offers Educational Savings Plans in Cayman?
You can talk to your bank about opening a savings account specifically to save money for your children’s college and university fees. Cayman National, Butterfield Bank and Scotiabank all offer Student Savers accounts. Alternatively, Cayman-based companies who offer advice on educational savings plans include Blacktower, Georgie Loxton at Liberty Wealth, BIAS and RBC Dominion Securities.
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