The more you learn, the more you earn.

Conventional wisdom on saving for College

Many of us as parents want the best for our children, and that means saving up for their college tuition or university education. Readers who are from the Lion City (i.e. Singapore) also want the best for their children and the costs of providing tertiary education looms large in their scheme of financial planning. Some parents even cite the high costs of university education both locally and abroad as reasons for not having more children. That gives us an indication of how important higher education is to many of us here.

Dave Ramsey’s baby step #5 save for college debunks some of the myths of college education. He is supportive of getting a college degree but he warns his readers not to put themselves and their children into serious debt by going for brand-name colleagues and off-campus accomodation just for the sake of looking good. An ivy-league education if it mades you a slave to debt may not be in your best financial interest.

The Singapore University (College) Education Scene

University cost inflation is real. When I studied in NTU back in the early 90s, my tuition fees for my first year in Accountancy was $2,600. NTU’s university fees for an academic year are now $6,360 (after MOE subsidies) even for non-laboratory based courses. The annualised inflation rate is 5.4% compounded annually. The costs of overseas university education would be even higher after factoring accomodation and other living expenses abroad.

Depending on where you intend to send your child for his college education, you would need to plan to save and invest accordingly until your baby boy or girl turns 18 or 21 and embarks on his or her college education. How much monies are we potentially talking about?

I’ve done some computations in a post on kidsRICH on affordability of university education and you can check it out. Basically, you would need to save around $287 per month for the next 18 years to provide for a university place for your child born today assuming a investment return of 3.5% and inflation at 7%. If we use 5.4% as the inflation rate for university costs, then you will need to set aside $219 per month for the next 18 years in order to put your child through a 4 year university (college) program in Singapore. All costs are projections and actual results will depend on investment returns, actual inflation rates for university costs etc.

Un-conventional Wisdom

Providing university education appears to be a given in Singapore with most parents saying they would fund their education.  However, the reality could be different because costs are going up due to inflation and even today peak oil and high commodity prices make real wage growth challenging for middle and lower income folks. Breaking free from conventional wisdom, there are many ways to fund your child’s college (university) education. Some examples could be:

1. Co-funding - Get your child to borrow 50% while you fund 50%. This would make him a stakeholder for his own college funding
2. State-funding - If your child is able to secure a scholarship from the State or any of the Temasek Linked Companies or Statutory Boards, this could be another means.
3. Self-funding - Borrowing 100% from banks and paying off after graduation is common in the US but less so in Singapore. I know some ex-colleagues who studied in Polytechnic, worked a few years after graduating from Poly before pursuing university program overseas.

If you are willing to be different, there can be many ways out of the university funding issue. The more critical issue is whether your child’s academic results are sufficient to gain entry into the preferred course of study.

A university degree is nowadays a hygiene factor in the employment market but increasing the complex marketplace also rewards people who have talent outside academic qualifications per se.

Be well and prosper.

Related Posts:

1. Dissecting Dave Ramsey’s “Total Money Makeover” - Start Your Emergency Fund [Part 1 of 7]
2. Dissecting Dave Ramsey’s “Total Money Makeover” - Start the Debt Snowball [Part 2 of 7]
3. Dissecting Dave Ramsey’s “Total Money Makeover” - Finish the Emergency Fund [Part 3 of 7]
4. Dissecting Dave Ramsey’s “Total Money Makeover” - Invest 15% of your Income for Retirement [Part 4 of 7]