Investing towards your children's education fund - Part 2

By Carol Yip
Thursday Oct 21, 2010

Property investments for your children’s education fund
You can save towards purchasing property as an education fund for your children in the future. Here are some tips.

1. Monthly saving, which is supposed to be saved for the education fund, can be used for loan repayment.

2. Select a well-located property for capital appreciation and rental income:

i. Rental income can be used for housing loan repayment while you continue your regular savings to build up a bigger pool for your children’s education.

The additional savings can be invested into other investment opportunities to grow your children’s education fund. You can create a diversified portfolio of investments to spread the investment risks.

ii. When there is a need to pay for children’s education in the future, 18 to 20 years’ time, the rental income can be used to pay for your children’s expenses when they are in college or university.

iii. When there is capital appreciation, the property can be sold for a lump sum (after housing loan settlement) to pay for your children’s tuition fees and monthly allowances.

Be creative when you invest in properties:

1. Buy one property for each child. It can be an apartment, house, shoplot or office – provided that it gives good returns.

2. Invest in a shoplot where you can rent out different floors or buy blocks of apartments or commercial offices for different sources of income.

3. Properties that are not sold for payment of education fees can be reserved for your retirement. It can even be given to your children as their wedding gift so that they can stay near you at your old age.

Financial education at home: Team work between you and your children
The ‘real value’ of investment is actually your children. They are your ‘lifetime investment’. The greatest return is when they value you as their parent more than money can pay for their education.

It is a team effort for the family – communicate with your children when you review the investments for their education fund. This way, your children are aware of your challenges and commitment towards having enough to pay for their education. At the same time, you are teaching them about the importance of financial planning at an early age.

Providing continuous career guidance and assessments when your children are growing up is important to ensure that you have invested your hard-earned savings in the right education. It is better to assess which career the child likes. Why pay for an education that they are not interested in? Make the right choice.

If the amount saved is not enough when it is time to pay for their education fees, there is a need to look for other degrees within your affordability limits. Your child has to keep in mind both the lump sum (tuition) fees and the monthly allowance required during college or university so that they can work with you to manage the limited savings for their education needs.

Financial stresses can affect your child’s studies. Your child needs to understand and live within these limits. If the issues are communicated clearly and approached as a family unit, a matured child will strive to study harder and find solutions for any financial difficulties. Scholarships, and/or a part-time job can help to relieve the financial burden.

Other important aspects of parenting:

a. Family lifestyle and values

The kind of lifestyle that parents expose their children to at a young age can impact how they behave in college/university. Parents have to think of the lifestyle that they have given to the children because it will directly affect how they spend their money.

Parents need to differentiate the savings for child’s education and lifestyle – like getting them a brand new car or secondhand car. The child needs to understand the priority of going to college/university is to get a degree and not enjoy a lavish lifestyle. They should take the public transport/share transport with college mates if they have to.

b. Teach your children about financial education – it’s free

Constant financial education and communication with your children about how to manage money at home is important. You and your spouse should advocate a frugal lifestyle – spend wisely, save smartly and quickly pay off any debts.

Soon, your child will understand that:

i. What is not used up for their education fund can be used to buy their first house or car. Money not spent comes in handy when they start their career and for your retirement.

ii. If there is insufficient money, they will know how to manage the limited resources and find ways to fund their education such working part-time to pay for their own living expenses or tuition fees. It is about knowing how to appreciate the initial financial support to embark on an education path.

iii. If there is a need to take a loan for their education fees, the child knows he/she is responsible to repay the debts.

In summary, even if you feel that it is the parent’s responsibility and obligation to give your children an education, it is just as fulfilling when you educate and teach your children important family values and good money management skills. These are important life lessons and skills that are not taught in our education system. So, teach financial education at home to prepare your children for today’s materialistic world.

If you have any ideas or feedback on this topic, share it with Carol Yip at carolyip@aboutmoneytalk.com