Understanding your Children’s Education Program
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By: Arlen Macaspac, RFP
Who among us young parents’ doest give much attention to the rising cost of education. During my college years at Mapua Institute of Technology, my tuition fee was only 1,500 pesos per semester that was about 23 years ago. What was about my tuition was that it did not increase until I finished my civil engineering course. Assuming that the tuition today in the same school is 150,000 pesos per year that would mean an average increase of 19% per year was applied. Don’t you think it’s about time you take a look on your children’s college education program?
Carl, a young businessman and his wife were discussing with me on how they can prepare a good program for the college education of their 2 children.
Here is the scenario:
Alex, their eldest daughter is 6 yrs old and will be on her 1st year college when she reached 16 will be sent to a 5-year engineering course in Manila and their assumed tuition per semester is 50,000 pesos. Their available saving now is only 100,000 pesos which they currently placed in the bank earns only 3% per annum less 20% withholding tax.
Their predicament is to leave their money in the bank or invest them somewhere, so that they can use it by the time Alex starts 1st year college.
Jill, the loving wife just gave birth to a new baby girl named Andy wanted also to do an education planning for her young daughter. She plans to set aside 5000 pesos per month from her salary for Andy and she wants to know how to go about on their children’s total college education fund.
The Analysis:
| Alex | Andy | |
| Current Age of their child | 6 years old | 0 year old |
| Age Entering College | 16 | 16 |
| Number of years before college | 10 | 16 |
| Number of years in college | 5 | 5 |
| Assumed tuition today per year | 100,000 | 100,000 |
| Average tuition fee increase per year | 10% | 10% |
| Future Education Cost for Alex | Future Education Cost for Andy | |
| 1st year college | 259,374.25 | 459,497.30 |
| 2nd year college | 285,311.67 | 505,447.03 |
| 3rd year college | 313,842.84 | 555,991.73 |
| 4th year college | 345,227.12 | 611,590.90 |
| 5th year college | 379,749.83 | 672,749.99 |
| Total Cost in 5 years | 1,583,505.71 | 2,805,276.96 |
The cost of College education for Alex is 1,583,505 pesos, and her available budget is 100,000 pesos.
If Carl leaves the money in the bank that earns 3% per annum, his 100,000 will grow only up to 134,391 pesos in 10 years, and the bank deducts them 20% withholding tax from the interest, this leaves them a net fund of 127,513 pesos only.
It will take Carl to look for a guaranteed investment that gives 32% per year for his 100,000 pesos to reach 1,583,505 pesos which he believes is impossible.
Possible solution he can do is to save a regular fund of 9662.63 placed at 6% return for the rest of 10yrs so that they can build a fund of 1,583,505 for Alex.
The cost of college education for Andy is 2,805,276.96 but Jill can only save up to 5,000 pesos per month for 16 years.
If placed in the bank at an interest of 3% per annum, the fund grows to a maximum of 1,230,213 only
If placed in other facility which earns 6% per annum, the fund for Andy will reach 1,605,416 which are still beyond the 2.8Million education requirement. It will take Jill to find 13% per annum interest to reach 2.8 Million at 5000 monthly savings for 16 years.
Please note that the analysis does not include the cost of allowances, boarding house and food during their college years.
This education requirement continues to grow and even surpass the inflation rate. Would you be more happy to try helping out our children to be good in their studies so that they can be scholars and free ourselves from the burden of future financial liabilities at stake on our children’s’ education?
The way we plan any of our financial objective will always be dependent on several factor like time, initial investment, choice of investment facility, the rate of return of your investment. It is likewise advised that each financial goal should be treated and planned separately so as the budget allocation.
For comments and suggestions, you can email info@grand-holdings.com of visit my website at www.grand-holdings.com
