Newly released statistics from the Old Mutual Savings and Investment Monitor reveal that education is one of the first places that household budgets are cut in times of economic pressure. At roughly nine percent, the cost of education in South Africa is rising faster than the country’s inflation rate, leaving those who are not adequately prepared at risk to the shocks of a volatile economy.
The report reveals that 54 percent of South African parents say they do not know what the future cost of education will be and that only 40 percent are saving for their children’s education. Insurers urge brokers to ensure their clients cater for their children’s educational needs through investment, and adequate life and disability cover, and that they understand the potential consequences of not doing this.
“Parents have a responsibility to provide for their children’s education costs should they no longer be there to do so,” says Walter van der Merwe, CEO of FedGroup Life. “As such, it is the trustworthiness and availability of the financial adviser that is imperative in ensuring that these factors are catered for.”
Old Mutual investments marketing actuary Sinenhlanhla Nzama says that in 2014, one year of education could cost between R23 000 and R42 000, depending on the level (primary school, high school, or university) and type (public or private) of education. “A 2033 forecast will see you spending between R118 600 and R215 500 for one year’s education,” he adds. There are also the costs of school supplies, extramural activities and university housing to be considered.
Considering these costs, and a myriad of other factors including earnings, lifestyle and age of children, it is impossible for insurers to give a blanket indication of what a parent should be contributing to a policy on a monthly basis.
“Beyond education, a qualified and competent financial adviser will be able to anticipate most factors affecting the financial security of minors,” says van der Merwe. “Policies have evolved to the point that it is less the failings of the policy itself, and more the mismatch of policies to beneficiaries’ needs that leave minors lacking.”
Van der Merwe reiterates that engagement with a trusted and certified financial adviser should protect a child’s education and financial future.
As revealed in a study from the Association for Savings and Investments South Africa (ASISA), as many as 60 percent of South Africans are underinsured. That disparity can leave children financially worse-off, says ASISA deputy CEO Peter Dempsey.
“For many households, this may mean selling the family home, selling a car, drastically reducing their living expenses and possibly having to send children to a more affordable school should something happen to one of the household’s earners,” he says.
With back to school a priority this week, the education needs of children are in the spotlight. Securing adequate coverage plans for clients will improve business, and help safeguard the future of the client’s family.
