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.
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Plan, Plan, Plan
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 researching college fees to estimate how much you may need and when you will need it, depending on the age of your child. 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. Just type into Google 'Education Fee Calculator' or 'School and University Fees Calculator' and lots of options will come up. There is a particularly good one on the FINRA website.
Discuss College Education Early
Having conversations early on with your child is critical when 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? You can explain to them that for the same degree, you can take it in the UK in three years, versus four years in the US. If you can save a year's worth of college fees and living expenses, then that is huge. You can also remind your child that they can apply for scholarships to help with the fees, especially if they are Caymanian, and then be open about how much you could help them financially, and how much they will need to fund themselves by getting a summer job or using their savings. 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 the 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.
US versus UK?
For many in Cayman, the US is a logical choice; it is after all much closer to the Cayman Islands. However, for both Caymanian and expat students, Canada or the UK can be another, possibly cheaper, option. In the US, tuition fees tend to be between US$30,000 and US$80,000 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-£15,000 per year for living costs (not including flights to and from the UK). Those students without a UK passport will pay ‘overseas fees’ of between £15,500 and £35,000 per year depending on the degree (lab-based degrees, including maths and engineering, incur higher fees). The overseas fees for the UK are still a little over half of the cost of the US. In Canada, average university tuition for an international student is $36,000 CAD per annum, cheaper for local tuition fees. 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 the ‘Applying to Overseas Universities’ article 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. Education inflation can be roughly 5%, or even higher, depending on the school and location. Consider investing in the stock market, however, it is important to review your timeframe 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 withstand the ups and downs to benefit from long-term growth.
Involve Family & Godparents
At various banks and institutions in Cayman you can set up an education investment account or education trust and you can let family and Godparents know about it so that they can make deposits on behalf of the child on birthdays or special occasions. The account would be in the child's name and they would have direct access to it should anything happen to their guardian. The bank will invest it and over time it would hopefully have enough in it to cover your child's college fees.
Financial Commitments
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. 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.
Final Word
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!
