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Education planning: 6 things to ask your IFA

Education planning in the Dubai of 2017 – it’s not a time to be shy when it comes to asking questions of the experts! We’re past the mid-point of summer, and the parents among you may well be counting down the days until your darling ones (!) return back to school.

Education planning – saving and budgeting

Those of you sending their offspring to fee-paying schools will be used to saving and budgeting for their education. Some expatriate families in the UAE may currently be benefiting from paid-for or subsidized schooling for their children as part of the parent’s employment package – though this is becoming rarer. But there is little doubt that paying fees for their higher education will be a significant cash outflow from your personal finances. As with any major investment, it is always better to use these interim years planning and investing rather than hastily drawing on savings pots after your child has been accepted into a university. By then, you might not HAVE any savings pots. It will be a timely conversation to have with your adviser, too, especially if a UK university will be the destination for your children’s learning. Annual tuition fees this year rose to a potential £9,250 per year from this Autumn following a July 2016 announcement ‘sneaked out’ by the Department of Education in December – raising the previous £9,000 cap. The new fee maximum will affect domestic and EU-citizen students automatically, while international and post-grad students will see fee changes as per each university’s discretion. So here are some conversation pointers when your adviser and you get your heads together.  

1. How can we achieve our education savings target?

University fees when your children eventually come of age and start their degree will be paid yearly or per term over the three- or four-year period. The bulk of these savings you will need in place by the time they start the degree, therefore your game plan for savings will extend not just to when your child starts university at 18 years old (assuming they do not take a gap year) but right to the end of the degree – 21 years old. Since UK university fees are set to rise further, in line with inflation, your adviser will focus on this whole period, and the estimated fee price growth that will need to be accounted for. In layman’s terms, the shorter the period between now and that last year, the steeper the savings will be required, as well as the growth profile – ie. how much return you’re getting from them in your underlying portfolio – of those savings.  

2. What are the best savings vehicles for education planning?

It’s important to discuss the products you currently use which have a savings and growth component – such as a stocks & shares ISA – compared to others which are out there. Compare features. For example, the number of investment funds that are available to you using the savings platform of a different product; the flexibility of increasing or decreasing monthly contributions; the options for drawing down at the end of the savings period.  

3. Do I need a savings vehicle per child?

This is very much down to the above discussion of the available products out there. If your children have three or more years between them, the conversation may be very different than if they’re siblings with a close age gap; potentially with you using different solutions if the eldest’s university career is near! So, in short, no blanket answer! Of course, that you may have to fund more than one child’s university fees within a five year period (including if they might at one time both be doing a degree) is another significant factor when it comes to budgeting.  

4. How will my education planning strategy affect my wider personal finances?

Money put aside at regular intervals for fee planning will obviously not be money used for some other purpose. So it’s important to take a step back during the conversation about growth rates and products to analyse how this affects your wider plans.
  • Does it mean you reducing your regular contributions to your short-term savings plans, or even to your personal pension? If so, by how much – and how will this affect the retirement targets set when you last reviewed these vehicles?
  • Does it mean reviewing the viability of any major investments – or delaying them – you may have had, such as launching your own company?
  • What might you need to cut or reduce in your week-by-week living as a result of this new aspect of your budgeting?

5. What’s the landscape of university costs internationally?

Much of this you can research yourself online, of course. Expertmarket found in a 2015 study (summarized by BusinessInsider) that UK and US universities – though often perceived as steep in their charges – were outranked by other countries when it comes to the ratio of fees to average household income. If you’re expatriate, particularly in an income tax-free environment like UAE, the affordability ratio relative to your general living may be slightly different. Location is also something most relevant when your child is a teenager and considering higher education. No use researching the Sorbonne when your child is an infant, no matter how precocious! But it’s an important point since the destination of the university – in addition to its calibre and reputation against its national peers – is all part of the viability of paying for that degree. If your adviser is well-versed in education fee planning, they will know well this international variation in costs. They may, therefore, have a few useful case studies of previous clients looking to bridge that funding gap, and how the target country impacted the planning.  

6. Living costs – a factor in education savings?

The student loan is occasionally used for fees, but more frequently for day-to-day living during the degree. It infamously hangs over the heads of students after they graduate. Is it possible, therefore, that during this conversation about fees, you might also discuss the incorporation of extra savings to go towards these living costs to reduce this financial burden? You might find it a worthwhile consideration, particularly if you have 10 or more years to plan.

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