In Malaysia, navigating the financial landscape as parents can be a significant challenge. According to reports, the estimated cost for parents to raise a child – covering everything from birth to university graduation – ranges between RM393,000 and RM1.3 million.
Notably, education takes up a significant portion of this expenditure. A major factor is the choice between private and public institutions, and whether these are domestic or international.
Just as with investment, it’s essential to plan ahead when it comes to your children’s education. Here are five steps to help parents prepare and strategise.
1. Estimate costs
Parents must take into account variables while estimating the future cost of education, including:
- type of educational system or potential field of study;
- private or public institutions;
- local or overseas;
- expected living costs, especially for studies overseas.
These numbers aren’t static – a yearly review will keep you aligned with the most recent trends. Multiple sources can provide a ballpark figure.
2. Understand your financial situation
Before you embark on any journey, take stock of your resources at the starting point. Your assets might be scattered across cash, properties, and various investments.
Dedicate a certain percentage exclusively for your child’s education, even if this involves reserving a part of your liquid cash or marking a property for future sale.
3. Determine the amount to cover shortfall
A financial calculator will help you determine what you need to save or invest. Once you have an idea of the future education cost, compare it to what you possess. This helps you calculate the monthly or yearly savings required to bridge the gap.
For instance, if the cost of education today stands at RM100,000, with 4% inflation over the next 17 years, this amount would swell to RM194,790.05. With RM25,000 and a 6% return rate over the next 17 years, you would need to save approximately RM400 monthly.
4. Choose the correct financial vehicle
When it comes to your child’s future, three investment rules stand out:
- preserve your capital, even if it means compromising on opportunities with high returns;
- diversify while considering instruments such as PTPTN’s National Education Savings Scheme;
- stay focused by regularly reviewing and adjusting your strategies with the final goal in mind.
5. Avoid common pitfalls
Along the way, you should be wary of these common financial mistakes:
- Overlooking retirement planning
While children’s education is essential, retirement planning is equally crucial. There are options such as education loans to fund studies, but fewer cushions when it comes to retirement.
- Misplacing trust
Beware of fraudulent schemes that prey on parental concern. When in doubt, always consult with a licensed financial adviser.
- Negligence
It’s crucial to regularly review your investments. An annual check can ensure your financial trajectory aligns with your goals.
With the proper steps and timely decisions, parents can make the most of the power of compounding to their and their children’s advantage. Above all, remember that preparing your child’s education demands foresight, discipline, and unwavering commitment.
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