Education Planning Tips: Avoid These 3 Traps & Keep Your Retirement Plan

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COVID taught me two important lessons about education planning for my children:

First—planning is a must. Whether I want to be the parent of a neurosurgeon, or I want my child to be happy and pursue his/her dream, my children need a decent education, and I need funds for that.

The 2% average education inflation rate (DBS, 2022; TRADING ECONOMICS, 2022) shows me the importance of education planning to ensure funding.

Second—anything can happen, especially with children. My neighbor’s good performing son recently experienced a drop in grades and needed tuition. My friend’s daughter suddenly has skin allergy and needed medical care while the another required braces for her teeth. I tell myself, I must always be ready for such situations.  

To survive as a mother of two, I have to believe that education planning runs together with my household expenses.

I learned that putting some cash aside did not help. Buying an education insurance plan was not enough too. I was forced to accept that education planning is no longer that simple.

Think about it: with jobs shifting to cope with the unbelievable fast pace and advancement in technology, every child in Singapore now faces more education choices: local or overseas university; degree, masters or PhD; double major, major/minor, or double degree.

This then involves a complex process to pick the best education path—our children need to understand their strengths, know the available education choices, and then weigh the pros and cons.

There is a wide spectrum of education insurance and savings plans out there, and with enough aggressive tactics, it is easy to just dive in and be lost in the flow of things.

At the end, you will realize that you could’ve gotten more. But, as always, it will be too late to do anything.

So my advice is to take note of the following 3 risky traps before making a commitment:

1. Don’t use a default mature payout date

By default, I mean the ‘fixed’ maturity terms of some endowment savings plans.

For example, ‘after 15 or 20 years’ or ‘when your child completes his/her Tertiary education’, presumably at ‘the age of 25 ‘. Using the default means that if your child graduates before the payout date, you will be left unprepared.

With that said, consider the maturity payout date to be at the start of your child’s tertiary education. For example, age 19 or 20 for girls, depending on their post-secondary education route, and age 21 for boys, considering their period of National Service.

Of course, a date customised to your child’s learning path is the most reassuring. For this, have ‘the talk’ with your child to get a better sense of his/her plan or dream, then get in touch with his/her existing school’s Career Guidance Counsellor for a clearer idea of the best possible education pathway and the number of years required until tertiary education.

Lastly, identify a plan that lets you determine the commitment period. (Alternatively, you can consult a financial advisor who specializes in education planning to help you with this step.)

Table 1: Minimum Number of Years for Bachelor’s Degree Programme in Singapore
(Sources: Official websites of each stated university)

2. Don’t treat all plans the same

It’s more convenient to make general assumptions, especially when you’re so busy with your job and family —I understand.

But, practice prudence is still the key in financial planning, especially when you’re acting alone, without a financial advisor. Not all insurance policies and savings plans are the same, so know what you’re getting into before you purchase the plans.

For instance, some insurance plans do afford a degree of flexibility that will help you cope with unforeseen circumstances (see point 3).

Then, there are plans that bear two elements: death benefits and a cash value that is accessible after a certain period, and those that acquire a surrender value over time. But be careful that such cash access may not work like the payout of a savings plan.

If you plan to take on a life insurance policy as a savings plan, do take note of the difference between the two types of plans so as to get as much benefits from the plan you choose to purchase. A financial advisor would be able to help you with the details, should you need more advice and guidance.

3. Don’t fall in love with your plan

Be flexible. We have no choice. With so many education pathways, we can’t predict which route our children will take. Plus, you know that expenses can have their highs and lows, so we can’t afford to stick to the plan.

I’ll show you why. Let’s say, you have the following mapped out:

(i)   Determined the estimated number of years of tertiary education for each child. (Refer to Table 1 above)

(ii)   Worked out the total cost to complete a tertiary education (based on Table 2), noting that the average annual inflation rate here is about 3% per annum.

Table 2: Estimated Annual Tuition Fees for Main Courses Across the Universities (Note: Fees for SIT and SUSS are averaged over min. course duration as the school provided the fee for the full course.*Refer to Table 1) (Sources: Official websites of each stated university)

(iii)   Calculated the other expenses (including living expenses) of your child to complete the tertiary education.

Table 3: Estimated Annual Amount of Other Expenses for Tertiary Education Student
(Sources: Official websites of each stated university)

So now, you have a ballpark figure in mind, let’s say it’s S$15,110.

And then, you work out your monthly savings amount to about $105 since your child has just started Primary 2. (With this amount, in 12 years time, at your child’s first year of university, you’ll have enough and be able to get the payout for the expenses.)

Sounds good so far, right?

Then, some time after starting the savings scheme, you realise that your child… 

• Needs to enroll in enrichment classes like ballet, gymnastics or violin,
• Requires extra coaching in sports or music,
• Requires tuition for subjects that he/she is weak in or she wouldn’t be able to pass her exams and get into her dream class,
• Wants to go for overseas exchange programme.

Table 4: Estimated Costs of Enrichment Classes. The rates include classes held in CC (a group setting) or with a private instructor (one-to-one coaching) and does not include class materials. (Source: British Council, 2022; BYKidO, 2022; Dance Arts Singapore, 2019; French Toast Language Centre, 2022; Lessons Go Where, 2022; Maths Hub, 2022; MONEY SMART, 2022; Mediaone, 2020; Singapore Piano Lessons, 2022; Singapore Sports Hub, 2022; OnePA, 2022; Sassy Group Media Limited, 2021; SAFRA, 2022; The Learning Lab, 2022)

What would you do?

Deep down, you want to pay for all these expenses. These skills are ‘good-to-have’, though not compulsory, but they are good for your child to have. If he/she could do better in the future with these skills, why not?

But where do you get the additional funds? Do you reduce our family’s food expenses?

What if you have more than one child? Do you sacrifice one’s expenses for the other?

Or perhaps give up any good options that are pricy?

I remembered it so well: the pain I felt when I realized that I want to provide for my children, but I can’t.

So I learned: the way to afford the best for my kids while living with healthy stress levels is to use a flexible savings plan—one that allows an earlier or a later withdrawal, so I can have better options.

Flexibility Allows More: It’s Not Just About Them—It’s About You Too!

With the COVID-inducing new norms, two incomes no longer seem enough—and I’m not the only parent who felt this. Financial needs can jump at us from many places; the ones from our children will make us give up that luxurious high tea or that new car, or even our retirement plans.

Don’t tell us to hold back; it’s tough. Yes, it’s their future; they should work for it. But whatever dreams they have, our children need at least a decent education, and the path to a bright future shouldn’t be limited by costs.

If we, their parents, don’t support them, who will?

Still, I don’t think sacrificing our retirement plans is the way.

A Split Savings Programme

Consider this: I portion—which is essentially, ‘split’—my savings for two uses. Now, I can save for my children’s education AND my retirement at the same time!

Also, since I’m making only one commitment for two purposes, there’s greater convenience, and I like it!

But then I realized I have to save more per month, which increases my financial strain, and I didn’t want that.

So I chose a programme that also allows me to ‘make my money work for me’—I invest my monthly savings and let them multiply behind the scenes. That way, I can keep my monthly savings amount at a comfortable level and still be able to afford a substantial amount for both education planning and retirement. 

I’m kiasu; I believe that ‘the early bird catches two worms’—the sooner we start planning, the better chances we get at having the best of both worlds: a financially independent future and our children’s success.

When is ‘sooner’?

Why not now? Contact me—your one-stop for advice on education and financial planning—and we’ll start right away!