Dubai: Financial advisers recommend that parents plan for school fees while their children are young, to secure future educational financial needs.
One way of doing this is to invest in education plans, which allow parents to regularly contribute small amounts that can be later withdrawn when a child heads off to school or university. They promise to give better returns and ensure that the money intended for a child's education are kept separate from every day finances.
Darren Ashley of Candour Consultancy said a good educational plan should have three key features:
1. It will allow you to withdraw money (to cover the ongoing education costs) within the term of the policy without penalty.
2. It will allow you to stop contributing to the policy, without penalty, for a few months — should another more immediate expense require you to.
3. It has a low reduction yield. This is the figure which tells you how much your policy needs to grow by to cover the policy charges. It is often easier to compare reduction in yield figures to the various charging structures and enhancements the different providers adopt. If the policy invests in mirror funds, remember there will be additional charges on top of those quoted.
Ashley said a good policy should also allow parents to invest in lower-risk cash and bonds, as well as equities. "This way, parents can choose to have some exposure to equities in the early years, or when the markets are really low, and gradually pull out of equities and into safer assets as the need for the education fees approaches."
Gurnos Stonuary of Nexus said it is important to meet with an independent financial adviser so you can discuss in detail the kind of education you want for your child and receive the appropriate advice. "If you aspire for them to attend Harvard Business School in the US, then the costs will be far higher than if the University of Dubai is your place of choice."
Steve Gregory of Holborn Assets advised that you protect your savings with life insurance and income protection insurance as well. Life insurance provides the money you wanted to create for your family in the event that you are taken away from them, while income protection creates the income you meant to provide before you were injured or unwell enough to work.
"If you have a ten-year or more time frame, you can let the markets assist you to build your savings, and probably will have some surplus towards your own retirement in addition to funding the university costs. If you fail to plan and provide, loans may need to be secured against your property and could cost the loss of your home."
