John Manyike | Head | Financial Education | Old Mutual | mail me |
The rush to enrol at universities and colleges is just about over. But by December, about 60% of the students who enrolled this year will drop out.
With the dropout rate will go the career dreams of many, hard-earned savings, and the realisation that student loans will now have to be repaid.
How can this situation be avoided?
Education is prized in South Africa; understandably, parents want the best for their children. But education costs and parents can expect to fork out about R50,000 a year for a BA or BCom, while the average for a BSc would be about R 60,000, pointing out that after these costs there is still the cost of accommodation and other expenses to be covered.
Ensuring potential students and their parents get the most bang out of their education bucks is about managing expectations. The worst thing any parent can do is force a child to enrol for a course they don’t like as this is a sure way of fast-tracking a dropout and waste of hard-earned money or a student loan that still needs to be paid over time.
A realistic look at a teenager’s future should involve matching interests, skills, and academic achievements and selecting a path that could lead to university, a technical college or a Technical and Vocational Education and Training (TVET) College.
There is no doubt that these conversations could be emotional, but taking the right academic path could mean having a fulfilled child, a person who is following their interests, and getting a qualification that makes them ‘job ready’ for a competitive market. The other benefit is that money, often accumulated at great personal cost, will be well spent.
Statistics surrounding education are daunting
The Minister of Higher Education, Blade Nzimande, recently stated that there were 1.1 million places available in tertiary institutions. He then added that 23 out of the country’s 26 public universities received nearly 4.5 million applications for 2024 placements. About two million students approached the National Student Financial Aid Scheme (NSFAS) for financial assistance for the 2024 academic year.
These statistics show that demand for placement at the country’s universities far exceeds available capacity. Add the fact that 60% of those accepted for the first year don’t return, and it is obvious that, unless they withdrew for financial or other reasons, many varsity students should have been studying elsewhere at a more practical level.
NSFAS offers financial assistance to students attending public universities and TVET colleges, so options remain open to those who decide to attend other institutions.
What must also be considered is that preparing for a child’s tertiary education requires a long-term financial plan. After the birth of a child, parents have about 18 years to accumulate the money for tertiary studies.
The sooner savings start, the better the results
As with all financial matters, the sooner savings start, the better the results. Our research indicates that if a child is three years old when savings begin, parents must aim to accumulate R991,099 over 18 years for a university education. Saving R500 a month will see R475,054 being saved.
Increasing the rate to R1,000 monthly will result in R950,109. A R1,500 commitment will result in R1,425,163.*
Generally, education costs rise about 10% annually. It is essential to build this in when saving and ensure that a monthly commitment increases to cover inflation. Keeping pace with these two variables means the investment keeps its value instead of reducing yearly.
Delaying the decision means the pressure is greater, and the likelihood of accumulating needed funds is much reduced. Starting to save means examining the options available and, if necessary, consulting a financial adviser, who can make a savings part of a personal financial plan.
Traditional ways of saving for a tertiary education include:
- Using tax-free savings accounts
- Setting up a fixed investment plan
- Investing in Unit Trusts
Combine an effective savings plan with helping your child select the tertiary education best suited to them, and the benefits will last a lifetime.
