This article was written in collaboration with MoneyOwl. All views expressed in this article are the independent opinion of DollarsAndSense.sg
Most of us know that education is both important and potentially expensive in a country like Singapore.
Sure, primary school (free!), secondary school ($5/month) and junior college education ($6/month) are very affordable for Singaporeans thanks to the subsidy that we receive.
However, the cost of university education can be very costly for an average Singapore family, with annual tuition fee in local universities ranging from $8,200 to $34,200 a year depending on which programme and university you are in.
What’s more, this is only based on local degree programmes, without taking into consideration the cost of overseas education or education inflation that we may experience over the next two decades.
This is why many parents who are intending to help fund their child’s education would need to start saving and investing early. But simply saving an extra dollar or two each month whenever you have some spare cash is not going to be enough to fund your child’s education.
For that, you need a concrete plan.
Option 1: Get An Endowment Plan
Traditionally, an endowment plan is one of the main options that many parents would opt for.
If you hold the plan till maturity, an endowment plan would provide a combination of guaranteed and non-guaranteed returns that will be paid out at a fixed time – usually to coincide with when you will need the money for your child’s education. This also means that you do not have to worry about having to sell your investments, or for it to lose its value just before you need to liquidate your portfolio.
Many endowment plans also offer parents the option of adding a rider, which allows for premium waiver in the event that the parent passes on. This gives parents the assurance that the insurance company will continue paying for the plan and by extension, their child’s education, if they are no longer around.
The assurance of returns (especially the guaranteed portion) also provides a peace of mind that the insurance company is obliged to provide the payout required, regardless of market conditions.
For example, MoneyOwl provides an education savings plan that can help you save towards your child’s education. Called the Junior Endowment, it allows you to start saving for your child’s education from as little as $200 per month.
As you can see, the total payment commitment period is 18 years for girls and 20 years for boys (because of NS). Over the time period, you would have paid $43,200 and $48,000 respectively in premiums.
Based on the insurance fund achieving an investment return of 4.75%, the insurer would pay bonuses such that the endowment plan would enjoy a projected return of about 2.6%, and you would receive a payout of about $56,000 and $65,000 respectively. If the projected return is higher, you would get more. If the projected return is lower, you would get less. However, there is also a guaranteed minimum amount that you will receive no matter how low the projected rate of return is.
Option 2: Invest For Their Education
A different way to grow the money that you want to set aside for your child’s education is to invest it. There are two main ways to do so. You can 1) do it on your own by investing on your child’s behalf or 2) invest the money via a financial adviser.
Unlike an endowment plan, there is never an absolute guarantee when it comes to investing. If you invest on your own, you could invest foolishly, for example, pumping in all your money into a single growth stock which ends up going bankrupt and for you to lose all your capital.
Or you can invest to your best abilities, diversify your portfolio across countries, industries and asset classes and ensure that you take the active steps to reduce the downside risk of your investment portfolio, even as you strive for higher investment returns.
If you are unsure about investing on your own or are not comfortable with doing so, you can always engage a financial adviser to do so on your behalf.
MoneyOwl offers a plan – Junior Investment – where you can invest from $200 per month into the financial market. Based on a 100% equity portfolio, here’s what MoneyOwl projects you will be able to receive at the end of 18 years (for girls) or 20 years (for boys).
|Total Projected Payout||$100,000||$83,000|
|Total Commitment over Savings (18 years for girls, 20 years for boys)||$48,000||$43,200|
|Projected Rate of Return||6.7%||6.7%|
Note: Total Projected Payout of Junior Investment is based on a 100% equity portfolio. The payout is non-guaranteed and is dependent on the performance of the investment. Risk profiling will be required before a suitable investment portfolio is recommended to you.
While MoneyOwl offers both its Junior Endowment and its Junior Investment as education savings plan, you should make sure that the plans above are designed to suit you. That’s because at the end of the day, notwithstanding your good intention, you need to make sure that the plans that you buy for your child are plans that you can afford.
MoneyOwl plans are customisable, depending on your needs, budget and risk profile. A financial adviser from MoneyOwl will run through with you the details of each of these plans and your own personal needs, before proceeding ahead to advise you on whether the plans that you have chosen are suitable.
Invest Or Use An Endowment Plan? It’s Up To You
At the end of the day, whether you opt for an endowment plan or prefer investing for your child’s education is a personal preference.
An endowment plan may give you limited upside, but also a degree of certainty as your maturity value is less sensitive (due to the guaranteed portion) to the performance of the financial markets, which can significantly impact even well diversified investment portfolios.
On the other hand, if you are aiming for higher returns and are willing to forgo having some certainty, then investing your funds, either by yourself or through a financial adviser, would give you the best chance of earning a higher return. There are trade-offs for either option so you have to understand the pros and cons of both options and make a decision that you and your spouse are comfortable with.
If you are unsure on which option would suit you best, you can also send an enquiry to MoneyOwl to find out more about this topic before you decide on any of the plans.