South Africans urged to save for tertiary education

Parents are urged to start saving now for their children’s tertiary education in order to give them the best chance of overcoming the cycle of unemployment and poverty afflicting the country.

According to Basic Education Minister, Angie Motshekga, 67.2 per cent of South African matriculants passed their examinations at the end of 2010. Of these, only 23 per cent qualified for a university entrance. Furthermore, only 15 per cent of these university entrants will actually graduate from university - making South Africa’s graduation rate one of the lowest in the world.

Anil Jugmohan, CFA, Investment Analyst at Nedgroup Investments, says that by eliminating financial constraints as a barrier to South African students graduating from university, it may be possible to increase the number of university graduates. He says this is key to improving the employment statistics in the country.

Worst unemployment rate

“According to the Organisation for Economic Cooperation and Development (OECD), South Africa has the worst unemployment rate among 15 to 24 year olds and only one in four South African matriculants will find employment after school. It is crucial to upskill our young population and educate parents on the importance of setting aside the necessary finance to provide their children with the best chance of permanent employment – a university degree,” he says.

He says that the government is also taking this challenge seriously by joining with the unit trust industry to support unique initiatives such as the Fundisa fund - designed specifically to encourage and incentivise individuals to start saving early for their children’s tertiary education.

Jugmohan explains that not only are South Africans able to contribute relatively small amounts to this fund monthly, but the government also issues additional bonuses for contributions.

“For every R40 that you contribute to the Fundisa Fund each year the government will contribute an additional R10 (up to a maximum of R600). In this way, you are guaranteed a 25-percent bonus on your contributions. The money you invest as well as the bonus from the government is likely to earn further interest.

Monthly payments

“This becomes a very significant contribution in the long-term and is one of the reasons that we support this initiative. Anyone can start now – and with relatively small monthly payments - accumulate an attractive lump sum by the time the child is ready for university. While saving for your child’s education may be your primary goal, the real prize is watching them reap the benefits that a college or university degree offers,” says Jugmohan.

Jugmohan says that while there are still many socio-economic factors to address in order to sustainably improve the university graduation rate, a lack of savings should be the reason that prevents students from furthering their education.

“It is indeed possible to save for education at a tertiary level with small but regular contributions to an education fund and as part of a comprehensive financial plan. The crucial thing to understand is that it’s never too early to start.”

Jugmohan provides the following tips to young parents saving for their children’s education:

-       Start early: The longer the investment period, the more likely the fund will grow without too much strain on the budget for other expenses.

-       Monitor your returns and ensure that your returns are keeping up with inflation.

-       Don’t make withdrawals. The effect of compound interest means any withdrawal will severely curtail the final amount in the fund.

-       Encourage your child to contribute to their education with money from part time and holiday jobs. Not only will this help the final fund amount but it also instils in your child an understanding of the importance of saving.

-       Research possible scholarships and bursaries. There are many funding grants available and you should see if any are applicable to your child.