Tips on Saving for Your Child's Education

Child's education is a major priority for households. With student loans not easily available and scholarships difficult to secure, parents really need to think about to how to provide for their children's university education.

1.Start as early as possible

Imagine that you need to go somewhere that is 500 km away and need to get there by 10 p.m. Leaving at 12 noon means that you can drive leisurely and travel at 50 km per hour. However, starting the journey at 5 p.m. will now entail having to rush and travel at 100 km per hour. Even then, there is a risk that you may not make it on time.

This principle applies to funding your child's education. Start as early as possible –the moment your child is born, so there is more time to save, which means needing to save less per month. Initially, you may not be able to set aside the required amount for your child's education. That’s ok, set aside the funds anyway. When you can afford to do so, gradually increase the amount so you can eventually catch up.

2. Automate saving

Quickly set aside that money for your child's education. Get it out of your reach. Don't depend on remembering to transfer those funds every month.

Make arrangements so that the amount is automatically deducted from your main/operational account so that you don't even have to think about it.

3. One account or plan per child

Maita is 9 years old and she wants to study in Australia. Eko is 6 years old and will want to study in Indonesia.

Eko will be going to university in 9 years while Maita has 12 years to go. Also, since Eko wants to study overseas, costs will not only be higher, but may require some component of foreign currency deposit or investment.

It would be a disaster to have to tell Maita, "Ooops, the money will only be available next year. Can you delay your enrollment?" or to have to tell Eko, "Sorry, I had to use your education fund for Maita's study overseas, so you will just have to settle for a diploma and not a university degree."

Having separate child's education plans for each offspring ensures:

  1. the right timing of the fund's availability
  2. having the appropriate saving and investment strategy based on each child's needs
  3. being able to keep track of the amounts more easily

4. Protect those savings

Lala and Sonny were well on the way to saving for their child's education. For five years now, they have been saving Rp 2 million every month to prepare for when their child goes to university in another five years. Then something happened to Sonny.

Aside from the devastation of losing a husband and father to her children, Lala is now unable to keep up saving for her child's education. Sonny's life insurance is only enough to cover their living expenses and Lala's salary needs to go towards paying for their mortgage.  

Having insurance to cover the child's education could mean the difference between going to school as planned or not.

There are at least two ways to protect your child's education fund:

  • If saving or investing yourself –via time deposits, stocks and shares or mutual fund– take out a separate life insurance for the period until your child reaches university age. For example, if your child needs to go to university in 10 years, take life insurance cover on yourself for 10 years. This is called a 'term' life insurance, because it is for a specific period or term, with your child as the beneficiary.
  • Consider a policy that has both a savings and protection component. What happens here is that if the person paying the premium dies before the period, the savings continues –even without the premium being paid– so that the child will still receive the intended amount for his or her schooling.

5. Invest, don't just save

Education costs in Indonesia increase by about 15%-20% a year, which is why a simple savings or even time deposit alone will be not able to keep up with these rising costs. Consider investments, which have higher yields, for your child's education. Depending on your risk profile and time horizon, you need to choose the right mix of investments. 

Keep on reading: Things to Know Before Sending Your Kid to Study Abroad

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