Academic qualifications also “inflate”, how should you craft your children’s future?
In today’s society, not only commodity prices inflate, but also academic qualifications: the percentage of labour force with degree or above went up to 38.8%1 in 2016. Parents therefore expect their children to further their studies to obtain higher qualifications after the first degree so as to broaden their career path.
High expectations for children
International education is costly
It’s painstaking for parents to get their children winning at the starting line: send them to international schools, hire private tutors, enrol interest classes, study abroad, etc. Yet, the school fees of international schools in Hong Kong are extremely high. For international primary schools, the median annual tuition fee is HKD 118,000 while the maximum is HKD 197,000. For international secondary schools, the median annual tuition fee is HKD 158,0002. Tuition fees and living costs can be up to one million dollars for either the whole primiary education or the 6-year secondary education. Saving alone is surely not able to cover such staggering amounts.
How to save for children’s education?
Is your way effective?
Some parents might think that they could still earn enough for their children’s education by working hard and saving enough. Nevertheless, they ignore the fact that expenses will rise with inllation as well as quality of living. If you put your assets in the bank, you might well be able to earn interests, but they are too minimal to combat with inflation. If you invest in stocks, you might be able to grow the value of your portfolio, asset value may increase or decrease though. When you need money for your children, it might not be the time for you to leave the market with profits.
Plan ahead, live worry-free
So how should we craft our children’s future to cater for their education? First, you need to set a clear savings goal. According to the above figures, the tuition fees of international school are already high, their increments can also be shocking. Among those schools who have applied or been approved for increasing the tuition fees in 2018/19 academic year, the increment is up to 9.5%3. If sending children to study abroad, both tuition fees and living costs can be over several hundred thousand dollars per year. As far as education fund is concerned, the estimates should include not only the cost of the first degree, but also the inflation factor, which is often neglected. It is recommended to seek help from financial experts to come up a savings goal based on your situation so that your efforts can be minimized.
Second, parents should plan as early as possible. The longer the time, the greater the benefits of compound interest. An education fund should not rely on high risk investments, but on long-term ones with stable returns, taking advantage of the rolling effect of compound interest. Another advantage is that the earlier an educational plan is started, the lower its premium, making it easier to be implemented. If you start late, you will need more money to reach the same savings target, making it more difficult for you.
Third, the education fund has to be reviewed regularly. Once you have started your financial plan, you need to implement it continously and evaluate it regularly. If you get help from financial consultants, they may be able to adjust and improve your plan in accordance with your financial status and goals, offering you all-round protection for your investment portfolio.
Mr Lau plans for a bright future for his child
There are numerous ways to accumulate funds, depending on various financial status and needs Different financial propositions can be formulated accordingly. Considering the case of Mr Lau, his son, Fung, was born when he was 33. He planned ahead for Fung and wished to provide him quality education when he grew up. Hence, he took out Tahoe Life’s “Superior Harvest Income Plan” ４ after two years, with a hope to lay a good foundation for his family future with the Plan’s stability and flexibility. Mr Lau chose the 12-year premium payment term. The annual premium is USD 15,000 and the accumulated total premium is USD 180,000. The guaranteed cash payment per year, equivalent to 2% of the guaranteed matuarity beneift, as well as the accumulated annual dividends, can be left in the policy at Mr Lau’s disposal. For example, when Fung is between 18 and 21 years old, an amount of USD 25,000 is expected to be withdrawn５ to fund his overseas study. Moreover, when Mr Lau retires at age 65, he is able to withdraw USD 15,000 per year５ until his age of 80 to support his ideal retirement life. The Plan is in force as long as Mr Lau’s age 130. The expected total cash value at policy maturity６ is up to USD 6,696,468, allowing him to pass on this enormous wealth to his next generation.
As a Chinese saying goes, “raising children till they reach age 100, parents will worry about them for 99 years”, saving for your next generation’s education brooks no delay. Contact Tahoe Life’s financial consultants now to get professional advice to design a tailor-made financial proposition just for you, allowing you and your loved ones to live a hassle-free life.
Remark:
1.https://www.statistics.gov.hk/pub/B11100092017BE17B0100.pdf
2.http://std.stheadline.com/daily/news-content.php?id=1836310&target=2
3.https://news.mingpao.com/pns/dailynews/web_tc/article/20180703/s00002/1530555037185
4.The Plan is subject to its Policy Provisions. Please refer to the relevant product brochure for details.
5.The projected withdrawal amount includes accumulated guaranteed cash payments and interest (if any), accumulated annual dividends and interest (if any). As (i) the interest on accumulated guaranteed cash payments and annual dividends, and (ii) annual dividends are not guaranteed, the projected withdrawal amount is not guaranteed; the actual amount and number of years of withdrawal may be different from the above example.
6.The projected total cash value (i.e. maturity benefit) includes guaranteed cash value, accumulated guaranteed cash payments and interest (if any), accumulated annual dividends and interest (if any), terminal dividend (if any) and less any indebtedness under the policy. As (i) the interest on accumulated guaranteed cash payments and annual dividends, (ii) annual dividends, and (iii) terminal dividend are not guaranteed, which are calculated based on the Tahoe Life's current dividend rates and current interest accumulation rate of 4.00% p.a. on both guaranteed cash payment and annual dividend; the projected total cash value is not guaranteed. The actual amount payable may be higher or lower than those illustrated.
