An education: school fees ain't what they used to be
Discovery has just released a whitepaper on the cost of education in South Africa and on financially preparing for educating one’s children. Media (including myself) were hosted at Discovery’s Sandton head office at a round table to reveal the results of Discovery’s research on Wednesday.
The round table also included the presence of Maya Fischer-French, David Kop of the Financial Planning Institute and Discovery’s Claire van Wyk.
The results of Discovery’s whitepaper, which Fischer-French described as “quite terrifying” highlighted South Africans’ inability to fund their children’s education without stringent financial planning – and even then traditional education is not always affordable.
“According to our figures, the total cost of private education for one child could exceed R2.2 million today for the average South African family,” said Discovery’s Gareth Friedlander.
That’s assuming private schooling for said child from crèche level to university graduation, but according to Friedlander the figures for public schooling were not much better, although he did not have exact figures on hand.
Using their claim statistics data and the World Bank average amount of children per South African household, Discovery calculated that this would amount to some R5 million spent on school fees, given that the average is two children per household – or more.
“There are a number of trends contributing to this,” said Friedlander. “Firstly, children are starting school earlier and earlier, entering pre-primary and crèche which was not the norm some years ago. School used to start at primary school level – now there are a number of extra years for parents to think about, which adds up to an extra R200 000 [for one year’s private crèche and two years’ private pre-primary]. Also, every single child requires a tablet and cellphone and such in most schools, and this can contribute as much as 50 percent extra to core tuition costs. ”
“We estimate that R5722 must be saved from birth of the child to fund education increasing at 10% per year to fund one child from primary school,” said Friedlander.
“Also, education inflation is not linked to CPI, its CPI+, and education inflation has typically exceeded salary-linked inflation by 2 to 4 percent over the past decade – and that tends to compound. According to Friedlander, with nothing changing in your salary – if you start with crèche you would be spending about 18% of the average salary, that would have increased via education inflation to around “72% of your same salary by the time they finish high school. This figure was based on a household net of tax income of R40 000 per month and using average private schooling fees. We assumed it was for an average family with 2.29 children. We assumed salary inflation was 8%. We simply projected forward the costs of education at each phase using an education inflation assumption of 10%. We then converted this amount to a monthly cost of education and divided the monthly salary at that point by this amount."
“Of course, another problem is people aren’t saving to begin with,” added Friedlander, who said that only 44 percent of Discovery’s clients have an education policy in place in their financial plan.” Thisis sobering, considering that those are the affluent ‘one percent’ of the population that have things like Discovery products.
The fact that South Africa desperately needs more educated children was tabled too. There have been myriad studies proving the link between a country’s poverty and the education level attained by the average citizen. Discovery added its own local flavour by declaring that “if the existing graduate base of all South Africans with at least one year’s tertiary education were to get just one more year’s studying, the country’s GDP would grow by 18 percent,” said Friedlander.
So what can be done?
“When we look at financial planning it’s got to be holistic than just products,” said Kop. “We as parents need to make lifestyle choices, for example – how are you using your bond? Do you need that fancy car?” Kop also added that home schooling is becoming an increasingly attractive option for many, with more and more online access to free home schooling materials.
In terms of products, Discovery announced at the same roundtable that it has brought out a new Global Education Protector product for its clients, with an innovative new feature named the ‘education funder’, which rewards policyholders who haven’t claimed and are making positive behavioural lifestyle changes with rewards back which are paid directly into the education fund as an extra five, ten or 15 percent in the pot. The payback benefits along with the product itself, according to Discovery, could in theory entirely fund a child’s education from creche up to third year varsity, for a fee of approximately R300 per month.
According to van Wyk, the true long-term solution for such education woes is to proactively teach children financial planning basics from young. “There is always an element of education in a societal change. All my kids have got little savings accounts and understand about payment options and the like.” That way, perhaps, they won’t need education policy savers when their kids need educating.