How to Save for Your Child’s University Education

It may seem like overkill, but, the very moment you lay eyes on your little bundle of joy, that’s the moment you should start planning for their education.

Too soon? I beg to differ – and you will too, once you take a look at the average cost of tertiary education today, which will only climb to new breathtaking levels 20 or so years down the road.

Think about it. Inflation – a feature baked into the current financial system – will inexorably push education costs up, and even the fabled 2% per annum rate is enough to make tuition fees more expensive by 48% by the time your little one is ready for uni.  Secondly, higher demand for degrees will also cause prices to inch upwards even more.

All the more reason to put a proper child education savings plan in place, so you can better afford the heavy financial outlay that awaits. 

You may think that starting to save at literally Day 1 is way too early; surely it doesn't take 20 years to save up for a university degree, right?

Well, let’s take a look at the maths. Assuming you set aside S$100 per month in an investment that earns 4% per year, how much would you accrue after 10, 15 and 20 years? 

S$100 per month at 4% per annum	Total
10 years	S$14,983.62
15 years	S$24,989.44
20 years	S$37,163.04

You can verify these numbers for yourself using a compounding interest calculator.

At the end of 20 years, you’d have just slightly over S$37,163. That is barely enough to cover a three-year course at a local university today (more on this later).

Add inflation at 2% per annum (again, that’s the ideal case, inflation could very well go higher), and you’re looking at around S$55,000 – per child, mind you.

And that’s not even the complete story. The real rate of increase for tertiary education costs could easily exceed 2% per year. 

Plus, while 4% per annum investment returns seems modest given the oft-quoted “10% per year historical stock market returns”, that’s an average over several decades. 

In reality, the market goes through periods of booms and busts, and having a few years of poor returns can take a chunk out of your final tally.

One final point before we move on. 

You may think that you'd be able to save much more than S$100 per month as you advance in your career. (And, factoring in inflation, where you plan to send your kid, and what course they want to take, you may very well have to.)

However, more income doesn't automatically lead to more savings, due to the phenomenon of lifestyle creep. And if you find yourself struggling to keep up, you’re much more likely to give up altogether.

Hence, the key is to keep your commitment manageable and as painless as possible, making it a habit that you lock in early. The aim is to make saving up for your child’s education an automatic process. 

One way could be to automate your savings into a high-yield cash management account.

Here, take a look at this table of yearly tuition fees in Singapore, Australia, UK and US – at present. And yes, government subsidies for local study are included; that’s the lower end of the range. 

Country	Tuition fees (per year)
Singapore	S$8,200 – S$29,300
Australia	S$19,240 – S$43,290
UK	S$31,000 – S$40,075
US	S$13,428 – S$73,852

Source: DBS

These figures do not include other costs such as books, laptop, hostel fees and miscellaneous costs. 

And if your child wants to study overseas, you’ll also need to budget for things like plane tickets and accommodation, while coping with the higher costs of living in other countries. 

Yes, the forecast looks grim, but all is not lost. You can get ready for your child’s education with a savings plan, which can take several forms.

Now, to be clear, we don’t mean simply putting money into a bank account. What you want to do is to take advantage of market forces to slowly but surely grow an education fund.

This means investing your money, but doing so conservatively and cautiously. Also, because you’ll want to be able to tap on the education fund when your child is ready for university, your investment should remain fairly liquid,

In other words, don’t take out a second mortgage and bet on being able to sell it for a profit  down the road – what if you can’t find a buyer, or get a good price?

Instead, consider using the following tools.

An endowment plan is an insurance product that is primarily designed for saving up money. These types of policies have a long duration – 20 years is common – and provide returns and potentially, bonuses to help grow your education fund. 

During the period of your endowment plan, you are offered life insurance benefits. Some endowment plans also allow riders to be added, extending your suite of protection. 

At maturity, the cash value of your endowment plan, along with any bonuses and/or non-guaranteed returns, are paid out, and the policy terminates. 

You can choose between single-premium or regular-premium endowments; the former requires only a single lump sum payment, while the latter entails fixed premium payments throughout the term of the policy. 

Note that endowment plans are rigid – not paying your premiums will cause your plan to be terminated, and the cash value at early surrender may be lower than the premiums you have paid up to that point. 

Upon the plan’s maturity, you’ll receive at least the guaranteed returns stipulated in your policy. Alternatively, you could also set aside some funds for regular investing and leverage on the power of compounding.

A regular savings plan (RSP) is a type of investment plan built around investing sums of money at fixed intervals. The idea is to slowly and steadily increase your investment holdings over time, while benefiting from the growth of the market. 

Note that RSPs concern long positions only – i.e., you buy stocks and shares and make returns when prices increase. RSPs do not attempt to short-sell, or capture value from price declines. 

Given that over time, the market charts upwards, RSPs are well-suited to a long-term buy-and-hold investment strategy. 

Also, buying stocks at regular intervals helps to moderate price volatility in the short term, a popular hedging strategy known as dollar-cost averaging.  

Additionally, RSPs are available for a wide variety of markets, including unit trusts. These are a basket of assets that track a collection of different equities that offer diversification, important in hedging against sector-specific risks. 

RSPs also offer flexibility, as they do not have lengthy lock-in periods, allowing you to maintain a high degree of liquidity.

Hopefully, it’s clear by now that when it comes to your child’s education, starting to save from Day 1 is not too early.

Instead of leaving things to chance, it’s far better to start early by locking in a plan to build an education fund. 

Not sure how to get started on your child’s education plan? The HSBC Regular Savings Plan offers access to well-diversified unit trusts that can help you build you the funds you need.

For instance, if you are a HSBC Premier priority banking account holder, you'll enjoy 0% sales charge on monthly contributions and 0.85% sales charge for lump sum Unit Trusts purchased via HSBC's Online Unit Trust platform. Take the chance and compare the best account for your goals.