Preparing for Your Children’s Education

Preparing for Your Children’s Education
An excerpt from the book “Kaya Mo, Pinoy! 12 Steps to Build Wealth on Any Income”
By Alvin Tabañag

More than 360 private colleges and universities increased their tuition fees by an average of 10% for school year 2008-2009. Kaya gaya ng mga nakaraang taon, sumakit na naman ang ulo ng maraming mga magulang na may anak sa kolehiyo. One of the surest things that will happen in the future is that the cost of education will be a lot higher. Walang ibang pupuntahan ang tuition fees kundi pataas. Ang tanong na lang ay kung gaano kataas.

Check out the table on the next page and see how much you could be paying for your children’s college education. It shows the future value of P30,000 in tuition assuming different annual rates of increase. Kung ang anak mo ngayon ay 7 years old, papasok yan sa college pagkalipas ng 10 taon at ang babayaran mo na tuition sa isang semester ay mahigit P64,000 kung ang increase ay 8% taun-taon. Kung 12% naman ang increase taun-taon lagpas ng P93,000 ang babayaran mo per semester o P186,000 sa isang taon. If you plan to send your kids to the leading universities, expect to pay twice as much. And we are just talking here of tuition. You will need additional funds for allowances, school supplies, projects and other activities.

Kung ngayong taon ka lang nagkaanak, asahan mo na posibleng umabot ng P1 milyon ang gagastusin mo para mapagtapos ng college ang isang anak. If you have more than one child, then you have a much bigger financial challenge ahead of you. Hindi na uubra yung sasabihin mo lang na “bahala na.” O aasa ka na magiging iskolar ang anak mo. O aasa ka na mananalo sa lotto bago sila mag-college. Paano kung ‘di mangyari ang inaasahan mo? You have to plan now!

Years from

Now

Future Cost of Tuition
& Other Fees per Semester

8% annual

increase

10% annual

increase

12% annual

increase

Today

P 30,000

P 30,000

P 30,000

1

P 32,400

P 33,000

P 33,600

2

P 34,992

P 36,300

P 37,632

3

P 37,791

P 39,930

P 42,148

4

P 40,815

P 43,923

P 47,206

5

P 44,080

P 48,315

P 52,870

6

P 47,606

P 53,147

P 59,215

7

P 51,415

P 58,462

P 66,320

8

P 55,528

P 64,308

P 74,279

9

P 59,970

P 70,738

P 83,192

10

P 64,768

P 77,812

P 93,175

11

P 69,949

P 85,594

P 104,356

12

P 75,545

P 94,153

P 116,879

13

P 81,589

P 103,568

P 130,905

14

P 88,116

P 113,925

P 146,613

15

P 95,165

P 125,317

P 164,207

16

P 102,778

P 137,849

P 183,912

17

P 111,001

P 151,634

P 205,981

Future cost of tuition at various rates of annual increase

As responsible parents it is our obligation to prepare for our children’s education long before they step into college. Saving for it now will ease some of your financial burden in the future. Karamihan sa atin, ang tanging maipapamana sa mga anak, maliban sa pagtuturo ng magandang asal, ay ang magandang edukasyon. Nararapat lang na mapaghandaan mo ito ng mabuti. Here are four ways to fund your children’s college education.

1. Pay as you go
This is what you are going to do if you do not prepare in advance. “Pay as you go” means that you will find the money to pay for tuition only when your child is already in college. Kadalasan, manggagaling sa sweldo mo ang pambayad. The big problem with this approach is that you are not sure if you will be earning enough when your kids get into college. Paano kung kulang ang kinikita mo? Paano kung nawalan ka ng trabaho? The usual solution: uutang ka! At kung walang mauutangan, titigil na lang sa pag-aaral si Junior at malamang maghihirap din siya sa buhay tulad mo. Prepare now so you won’t be forced to follow this unreliable approach of paying for your children’s education. Early preparation will ensure that they will finish college.

2. Educational plans
Educational plans are pre-need plans that allow you to save money in advance so you will have funds in the future to cover your children’s educational needs. In recent years the public has been losing confidence in educational plans because of the failure of pre-need companies like CAP, Pacific Plans, Platinum Plans, and The Professional Group (TPG) to honor their obligations to thousands of planholders. Karamihan sa nagkaproblema na mga plans ay yung pinauso noon ng CAP na “traditional” o “open-ended” plans kung saan babayaran ng kumpanya ang tuition fees kahit magkano pa ito. E, biglang nagtaasan ang tuition. Ayon, kinapos ang pondo at hindi nabayaran ng tama at sa takdang oras ang mga tuition fees.

Despite the stained image, educational plans still remain as one of the most effective ways to save for your children’s education. One reason is it forces you to save. It’s like an insurance policy where you only get back a little amount (anywhere from 0% to 50% of premiums paid) if you give up the plan. Kaya sisiguraduhin mong matapos ang pagbabayad para di masayang ang pera mo.

Another reason why an educational plan is an effective tool for saving is that the pre-need company will do the thinking for you on how to grow your money and you’re assured to receive the promised amount. Wala ka nang iisipin pa.

Today’s fixed plans are much safer than traditional plans because the company will pay the planholder a specific amount after a number of years. Dahil alam ng kumpanya kung magkano talaga ang kanilang magiging obligasyon sa planholder, nakakapagplano sila ng mabuti at nakakasiguro ka na hindi kakapusin ang kanilang pondo. Bukod dito mahigpit din ang mga regulasyon ng gobyerno para mapangalagaan ang kapakanan ng mga planholders.

Premiums for educational plans will depend on the age of the child when you buy the plan, how long you will pay for it and how much benefits you want to receive. Payment period is usually five years, but you can also pay for 10 years. You will enjoy discounts if you pay annually or semi-annually instead of quarterly or monthly. Mas malaki ang discount kung spot cash or one-time payment.

Typically, educational plans start releasing benefits when the child reaches the age of 17. You have the option to receive the promised amount as a lump sum or in yearly installments. Some plans have added benefits like a graduation gift, a reward for graduating with honors or life insurance for you and the child. Hindi ito lahat libre; ang iba ay may dagdag sa babayaran mong premium.

The best time to buy an educational plan is the moment your child is born; para mas maliit ang premium. If you wait until the child reaches five years old, you will be paying twice as much for the same benefit. Buy your educational plans only from licensed and stable pre-need or insurance companies with a good track record of paying on time; para hindi sumakit ang ulo mo pagdating ng araw tulad ng libung-libo mga magulang na pinahirapan ng CAP, Pacific Plans, Platinum at TPG. You certainly don’t want to be holding a useless piece of paper when your precious one enters college.

Compare the cost and features of different plans before you decide to buy. Ask the agent what is the “effective rate” or “internal rate of return” of the plan. Kung hindi niya alam, magpalit ka ng agent. This rate reflects how much your money is growing every year. Choose the plan with the best rate. Kung di naman kalakihan ang deperensya sa rates (less than 1%), bilhin mo na yung binebenta ng biyenan mo para matuwa naman sa ‘yo.

3. Save and invest on your own
One of the downsides of educational plans is that the growth of your money is not that high; minsan katumbas lang ng 5% interest taun-taon.And this rate is fixed; it will not change during the life of the plan. If the rate of return is low when you buy the plan, you will be stuck with that rate until the plan matures many years later.

You can probably earn more if you carry out “do-it-yourself” investing, which means you set aside money and grow it yourself. This approach allows you to easily move your money to investments which offer higher earnings. Siguraduhin mo lang na talagang marunong ka kung paano ito gawin. Remember that this time you will do the thinking on how to grow your money. You should be familiar with the different investment products, like mutual funds, UITFs, and stocks, and understand the risks involved when investing in these instruments. Pag nagkukunwari ka lang na marunong, baka malugi ka lang. If you are not sure you can handle it, better give your money to the pre-need companies and let them worry about how to grow it.

4. “1-2-3” combination
This is a combination of any two or all three approaches. To fund your children’s college education you may rely on your salary, an educational plan, and money you’ve invested, all at the same time. Kung kapos ka sa budget mahihirapan ka ring kumuha ng educational plan na sapat sa pangangailangan ng anak mo pagpasok ng college. If this is the case, then buy the plan you can afford now and let your salary take care of the rest in the future.

Even if you think you are a pretty good “do-it-yourself” investor, you might still want to put some of your money in the safety of educational plans; para sakaling magkamali ka ng diskarte, may matitira pa sa ‘yo at hindi malalagay sa ala-nganin ang pag-aaral ng iyong mga anak.

PULL QUOTE

To fund your children’s college education you may rely on your salary, an educational plan, and money you’ve invested, all at the same time.

PROFILE

Alvin T. Tabañag is a personal money management coach and a Registered Financial Planner®. He is a member of the RFP Institute and the Financial Planning Association (USA). He established Pinoy Smart Savers Learning Center to spread a culture of saving among Filipinos through practical financial education. Alvin regularly conducts seminars on money management to a broad range of audience; from low-income wage earners to middle-class workers, professionals and business owners. “Kaya Mo, Pinoy! 12 Steps to Build Wealth on Any Income” is available in all branches of National Bookstore. For deliveries nationwide and bulk orders, visit www.pinoysmartsavers.com or contact (0917) 502-3149.

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