Invest offshore to finance your children's international qualifications

By: Old Mutual Wealth
Since the beginning of the #FeesMustFall campaign in 2015, issues surrounding university fees and affordability have been under intense scrutiny by decision makers, prospective students and parents – who are more often than not, faced with the financial responsibility. Among other factors, the uncertainty created by this movement has contributed to a growing trend among those who have the means to send their children abroad to study.
According to the 2017 Knight Frank Wealth Report nearly half of the respondents with clients in Africa (47%) strongly agreed that wealthy families are choosing to send their children overseas to get an education, while the global average is 28%.
Stanley Tordiffe, Certified Financial Planner (CFP®) at Old Mutual Private Wealth Management, says that the move by parents to send their children to study abroad is nothing untoward. “This is a natural trend as international travel is far cheaper than before, and together with technology, the internet and social media, it is making the world far more integrated and a global village.”
Amid global volatility and change in both the political and financial spheres, Tordiffe says that financial literacy and planning for your child’s education should remain a priority. “However, like any major financial decision, you need to consider a multitude of factors when deciding whether to send your children overseas for their education.”
Universities South Africa (USAf), the representative body of South Africa’s public universities, has granted South African universities an 8% fee increase for 2018.  “While not all universities have adopted the increase, the threat of fee hikes must be considered when calculating the costs involved with higher education,” says Tordiffe.
“The approximate cost for a three-year BCom degree at the University of Cape Town (UCT) is around R169 900 per annum, including tuition, accommodation and other relevant costs. UCT is one of the more expensive universities in South Africa, but it is also important to note that you will pay different amounts for different courses. An Engineering or Medical Degree, for example, will cost more than other degrees. So, a more expensive degree at one of the less expensive local universities will likely be similar in cost overall.”
Based on a comparison of three offshore universities, namely the University of Western Australia in Perth, Oxford in England and Harvard in USA, Tordiffe says that the annual average cost for an offshore university per annum including living expenses such as groceries, accommodation – ranging from renting a flat, living in res or communal housing, and entertainment, can range between a minimum of R 346 216 per annum – for lower end choices – to R1.1 million per annum at Harvard University.”
The costs for tuition and accommodation will undoubtedly be the main costs associated with university, however studying abroad involves recreating a home away from home for your children. “Related expenses like accommodation, meals, entertainment, flights and other expenses have to be included. There are many other expenses to consider when sending your child to live overseas whilst studying,” explains Tordiffe.
“You also need to consider your child’s living standards as an international student. Will it be at a higher cost or will they have to adjust to a cheaper cost of living?” he adds.
When making the necessary provision, Tordiffe says that possible rand currency fluctuations must be considered and planned for accordingly. “If the rand had to weaken significantly and you are saving in rands, it would mean you would be short in your savings goal. Therefore, it makes sense to have your savings aligned to the nature of the offshore goal by investing offshore and thereby hedging out the currency risk as early as possible in your savings plan.”
Education planning is only one of the goals you need to consider in your financial plan, adds Tordiffe, who suggests that investors look at their financial plan in relation to their lifestyle and decide how much they are going to allocate to education planning.
“To do this, you need to have a clear understanding of what is important to you and what your desired lifestyle and goals are – you can’t look at any one aspect in isolation. These goals also need to include the likes of your travel, recreation, home, car and retirement goals. By completing the full circle and determining all your lifestyle goals, you will be able to determine the level of investment return that is required for each goal, including your child’s education, based on your current financial circumstances,” concludes Tordiffe.

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