How to save for your kids’ university education

Do you have any idea what it costs to go to university these days? In the UK it can cost up to ÂŁ9000 per year; in the US it can be more than $50 000 per year; and in SA it can cost up to R40 000 per year (undergrad). And that's excluding accommodation, text books and pocket money. It's no wonder the idea of tertiary education keeps parents up at night. Almost the only way parents can afford to send their kids to university (other than pray to the lotto god or for a kids smart enough to get a scholarship or bursary of some kind) is to start setting aside money when the kid is still in nappies.

Savings accounts
This is not an exaggeration. Financial planners strongly advocate setting up a dedicated university savings account as soon as your child is born, or as soon as you find out that you're expecting. That way you can save a realistic and manageable sum of money every month without having to start saving in big chunks later on.

Make it a stop order or direct deposit that automatically comes off your account every month so that you aren't tempted to skip the odd month or simply forget about it.

In the US and UK, parents can choose to open savings accounts that are specially designed for university tuition. In the US, parents can choose between prepaid tuition and college savings 529 plans, which have inherent tax benefits, investment options, restrictions and fees; education savings accounts and savings bonds. In Canada, there are Registered Education Savings Plans (RESP). In the UK, there are capital schemes, income schemes and combined schemes.

Investments
Don't be afraid of the stock market. Interest rates on savings accounts are very low and don't, generally, keep up with inflation. Playing the stock market has the potential to bring you much bigger returns.

If you're nervous about doing it yourself, you can consult a broker who will do all the playing for you. She'll be able to advise you about high-risk, medium-risk, low-risk and combined-risk options. You'll be able to invest one large sum at once, with the option to increase the amount at subsequent periods of time. Or you can invest money on a monthly basis.

Combined risk options are great for nervous investors because the sum is split over high-risk/great return shares and medium to low-risk shares that won't grow at quite the same rate but which offer more security.

Trust funds
According to PSG Konsult, trust funds can be used to accomplish set financial objectives, such as saving for university. Inter vivos trusts are preferred as they can be managed by the trustor while she or he is still alive, as opposed to testament trusts which come into affect upon death.

Tax incentives
Many accounts and investment options that have been designed specifically for education savings have tax benefits. The best way to find out about these is to talk to a financial planner who will help you compare options and choose avenues that are suited to you and your financial capabilities. Many banks have in-house financial planners whose services are free of charge to clients.

In fact, you should consult a financial planner no matter which route you think you should go. A little professional advice goes a long way, especially when your children's future is at stake.