Time to redo your sums

Tue, Oct 06, 2009


The Straits Times
 
By Lorna Tan, Senior Correspondent
 
 
 
 
Last Thursday was Children's Day and a timely reminder to parents to review plans for funding that most crucial investment: their children's university education.

One important question: Are savings targets that parents may have set in the good times still achievable given that we are still stumbling out of this economic crisis?

Parents should take stock to evaluate where their investments are heading, and to re-think their strategies and their risk appetites.

It is important not to let the financial turmoil cause a knee-jerk reaction and discourage you from investing.

Still, parents who wish to switch to less risky products must be prepared to cough out higher investment sums in order to achieve their investment goals, cautions OCBC Bank's vice-president of wealth management Singapore, Ms Anne Tay.

For parents who have yet to start planning and for new parents, this is a reminder not to underestimate the importance of thinking ahead and saving early.

Ms Tay says that when planning for your children's university education, there are a few things a couple should consider:

• Where do you intend to send your child or children for tertiary education? Will it be local or overseas?
• Is it likely to be a medical course of study? Typically, these are costlier than other courses.
• If you plan to send your child overseas for his tertiary education, which is the most likely country? Parents should bear in mind the exchange rate movement between Singapore and the intended country of study. Popular destinations include Australia, Britain and the United States.

For parents whose education funding plans have been disrupted by the financial crisis, here are some pointers:

• Take stock of your current funding options

If time is on your side and you do not anticipate sending your children to university for another 10 years or so, then there is no real reason for any panic, said Mr Brian Goh, senior vice-president and adviser with ipac financial planning Singapore.

Still, you should work out the shortfall between your current investments and the projected education costs when your children are ready for university enrolment.

Relook your long-term financial plans, such as your retirement funding, and assess if they need amending.

Ways of plugging any gaps include: deferring your retirement for a few years, setting aside more savings towards your child's future education or buying additional investment plans.

• Insurance plans

If one of your funding options involves investment in insurance endowment plans, the projected maturity values may have changed, no thanks to the weaker investment climate.

This means that any projected shortfall, if significant, would have to be made up by additional savings, said Mr Albert Lam, investment director at IPP Financial Advisers.

• Unit trust investments

Mr Lam and Mr Ben Fok, chief executive of Grandtag Financial Consultancy, emphasised that while parents can afford to be aggressive in the first 10 to 15 years, you should gradually reduce exposure to equities and switch to bonds, or even cash, five years before you need the money.

Doing so will help preserve the wealth that has been accumulated in the earlier years and protect the plan from short-term market volatility which can undermine the meeting of financial goals.

In the past few months, equity markets have made a remarkable recovery. Some parents who suffered a shortfall in meeting their savings goals may be tempted to jump on the bandwagon to 'top up' their investments so as to fulfil those goals.

However, both Mr Lam and Mr Fok urge caution. Who knows when the markets might suffer a major correction again?

Parents with more than five years before the money is required for their children's education should pump cash into the markets in a measured fashion via a regular savings plan, which would help to smooth out the volatility, they advised.

• Local tertiary education

Instead of sending your child abroad, Mr Goh suggests that parents consider local universities or overseas varsities with campuses here.

He explained that the tuition fees are considerably lower. In addition, one does not have to incur expenses such as paying for lodgings and return flights home.

In recent years, Singapore has gained a strong reputation as an educational hub with a range of degree courses to choose from, some of which attract high demand.

• Overseas education

Parents with children who are very close to university-going age and are keen on an overseas education may consider countries where the currencies have fallen, relative to the Singapore dollar, suggested Ms Tay.

For example, the US dollar and British pound have fallen quite substantially against the Singapore dollar. One US dollar is now about S$1.40 and one British pound is now about S$2.25.

Another tip from Ms Tay is to constantly monitor the exchange rate between Singapore and the country where you intend to send your child for studies. This would ensure that you remain on track in building up the reserves or funds for your child's overseas education.

Parents should also look out for opportunities to build up their funds in the foreign country's currency. For example, before the current economic downturn, one Australian dollar cost S$1.30. But at the height of the turmoil, the currency was trading very close to parity with the Sing dollar.

'For parents who have not budgeted enough funds for their child's overseas education, they could leverage on such window of opportunity to build up their Australian funds. Now the Australian dollar is trading at $1.25, which has risen 25 per cent,' said Ms Tay.

• Student loans, scholarships and bursaries

The Central Provident Fund Board, universities as well as some banks, like OCBC, provide study loans, so you should do a check before settling for one.

There are also scholarships and bursaries that your child can apply for, said Mr Goh. The National University of Singapore's website has a list of some of these scholarships and bursaries.

Scholarships typically cover 80 to 100 per cent of tuition costs and some provide additional subsidies for room and board or other living expenses. Bursaries are grants for financially needy students, and the amounts range from $750 to $6,000.
 
Lastly, remember that it is always prudent to start education planning as early as possible so as to enjoy compound returns and to help ride out any volatility that erupts along the way.

'The earlier you start, the less you have to save per month,' said Mr Fok.

This article was first published in The Straits Times.