University Fees
What all parents need to think about when saving for their childrens’ university fees.
Expats living worldwide can benefit from many financial perks, including a better quality of life, higher incomes, and fewer taxes. However, being an expat can have disadvantages, and funding children’s schools or university fees can be considerable.
If you live in the UAE, you only have an option of private education, with costs soaring as high as $20,000 per year, depending on the school. Generally, parents fund schooling from their salaries; however, after they turn 18, the cost of funding university can take parents by surprise.
I know you don’t have a crystal ball, but try and consider the below factors:
- Where might your child go to university? For example, studying in Germany can be a fee, whereas Harvard Law School can be as high as $65,875 per annum (2020 figure)
- How many years do you think they may want to study? Courses ranging from 3 to 6 years can significantly affect cost.
- What are the potential living costs? If this is something you want to fund on top of fees, then research the area and your children’s likely spending habits.
- Are there any potential benefits? Some countries offer students financial support, which can help lower the cost. Developed countries provide minimal support, which is rare for international students.
- Where your children are residents. The country your child lives in is increasingly pivotal in determining whether they pay “home” or “international” fees.
Planning for UK Universities
At the time of writing, UK universities often look for proof of 3 full years of UK residency to qualify for “Home” fees. For example, home students can expect to pay £9,250 in their first year at the London School of Economics in 2020, whereas overseas students can expect to pay £21,570 in the same year. Home fee-paying students can also benefit from a student loan, which is unavailable for overseas students. People have mixed feelings regarding student loans. Mathematically, it’s the best loan, as it only rises with inflation. Technically, you pay the exact amount you borrow back in future when it’s affordable.
The UK system can tempt people to repatriate to help ensure their child qualifies for ‘Home’ fees. However, this can be more detrimental to their retirement than staying overseas due to earning potential and taxes. Repatriating to the UK might make very little difference from a financial perspective on a family’s overall wealth. More than likely, it would mean a lesser retirement to ensure lower-cost university fees.
Ways to Fund Children's University Fees
- Use your income—The risk here is if, for some reason, your income stops and you have to dip into savings or borrow. This could also make it difficult to save for your other goals or reduce your expenditures by downsizing your property or lifestyle.
- Use your savings—This is safer than using your income, but again, it could adversely affect your current and future lifestyle unless, of course, it was money saved specifically for university fees.
- Use Income from Investments—Simply put, if your children’s university fees and living costs are $20,000 per annum and you invest a lump sum of $200,000 that generates a guaranteed 10% per annum return, the university fees are covered, and your net worth is unaffected.
- Start Saving Early—This method is the most cost-effective as your money is working all the time, meaning more growth is used to fund the university fees, and less of your own actual capital is used to pay. For example, if you save $1,000 per month from your child’s birth, that generates a cautious 5% annual return compounded until they reach 18, creating a pot of $350,000
The UK system can tempt people to repatriate to help ensure their child qualifies for ‘Home’ fees. However, this can be more detrimental to their retirement than staying overseas due to earning potential and taxes. Repatriating to the UK might make very little difference from a financial perspective on families overall wealth. More than likely, it would mean a lesser retirement to ensure lower cost university fees.
Final Thoughts
The Most Effective Way to Fund Children’s University Fees is a combination of 3 and 4. Start saving a monthly amount early into a growth environment, after which you invest in an asset that generates a guaranteed income. This method uses the least amount of your own capital and does not adversely affect your net worth.
An Idea for Wealthy Britts!
If you are in a luxurious position of easily being able to afford to fund your children’s university, why not consider a gifting strategy? Gifting your children’s income-generating assets will reduce your income tax liability, assuming you live in a tax environment, and reduce your overall UK Inheritance Tax Liability.
Final Thoughts
Planning to fund your children’s university fees is like any other financial goal. First, figure out the future cost and work backwards. This will tell you how much you must invest as a lump sum or more regularly to hit the target. Always try to use profit and growth rather than capital.
A good financial planner can, among other things, help you calculate the inflationary effect on fees, set up an investment strategy that fits your needs, and manage the investment on an ongoing basis.
Book your 30-minute discovery meeting with Mark, where he will cover topics such as:
- How the Offshore Financial services sector operates and how it could be holding you back.
- Ways you can increase your current and future cash flow using advanced cash flow modelling techniques.
- A comprehensive review of your current investment, tax and protection strategies.
- A full review of your current fee schedule.
- How the standard asset allocation promoted by most advisers may hinder your progress to becoming wealthy.
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