By Aulia R. Sungkar. Published in The Jakarta Post on October 28, 2013
Photos courtesy of moneyshop.sg, clearfinancialsense.com, ferniefixcom.com, lifequote.com
The cost of education continues to increase, but schooling is still the best option in terms of securing a bright future for any child.
With competition getting stiffer in the job market, university degrees will become the must-have tool to achieve career success. But going to a university is not cheap, not to mention the incremental cost of tuition fees that can reach 100 percent within three to four years.
The average inflation rate in education costs is estimated at around 15 percent per year. Currently, the cost of education at local university level has reached Rp 120-165 million on average. It should come as no surprise that in the next 18 years the cost will be around Rp 1.5 billion to Rp 4 billion.
As for overseas universities, depending on where a child enrolls, the cost can be a lot higher.
The higher costs of the future have raised concerns among parents on how to set up effective savings plans for their children’s education.
Senior financial adviser and wealth planner Aidil Akbar Madjid recommends that prior to setting up a plan, parents should consider the higher education level they expect their children to reach, such as a diploma, a bachelor’s degree or master’s degree; whether a state or private institution in a local or overseas university of the choice.
More crucial steps, as Aidil continued, are to acquire the information on today’s tuition fees and identify annual increases.
“Knowing the nominal value of a current tuition fee will give you a rough estimate of what to expect to spend on your children’s future education. Therefore, you can identify which investment product to choose now.”
Aidil advised parents to also consider the allocated amount of funds and the length of time to invest, both of which are key factors in meeting their goals.
There are several investment products that can be used for an education savings plan, such as property, gold, bank savings, mutual funds and insurance.
“Property is not a liquid investment. You can’t withdraw the investment quickly. Gold and bank savings are great for the short-term. But if you have a relatively long time to invest, usually above five years, then you should consider investing in long-term instruments,” Aidil said.
One of the long-term investment products Aidil recommends is a mutual fund. “You can go to any of the investment managers or banks. Both are usually licensed as a mutual fund selling agent. Depending on your risk appetite, they can tailor your investment needs, including the amount needed and the length of time to invest for your children’s education.”
As a mutual fund pools money from its investors to invest in the capital market, Aidil suggested people monitor the progress of how their mutual fund product performs in the capital market periodically, if necessary evaluating their account every six months.
Education savings
Indonesians are becoming more aware and understanding that a life insurance policy provides not only economic protection for families but is also an attractive investment that prepares children’s education.
Despite the many ways to save money, however, funds for children’s education could be at risk if anything unfortunate happens to a parent, which can jeopardize the family’s savings.
“This is where life insurance plays its role in helping parents generate a long-term savings plan for their children’s education,” said Peggy Yogan Arlan, senior unit manager at Prudential Life Assurance.
Depending on the need of education and type of school that children would like to enroll in, a life insurance policy can help parents create a lump sum to cover their children’s education expenses.
She added the key to optimizing the plan on financing a child’s education program was the commitment to invest according to the calculation that the client and the agent – as the insurance company’s representative – agreed upon.
“My job as a financial planner is to educate prospective clients to plan their future, and to get the most of the premium they pay. In the case of an education plan, it is important that they are aware of costs incurred in the future. This way, we can provide a solution on how much they should put in their premium payment,” Peggy explained.
The higher the education, the higher the cost, and therefore parents should prepare for saving more funds to ensure their children’s education is on track.
She said she applied the same method in educating her clients to her own plan on her children’s education.
“I have an education program for both my boys through unit-linked products to benefit me with both protection and investment,” she said.
“The benefit of this program is obvious. While we are investing in our children’s future, both the children and the parents are also being protected from unfavorable events.”
