Fact: tertiary education in Malaysia is costly. The country has been ranked the fifth most-expensive to get a university education in relation to household income.
According to B2B marketplace Expert Market, average working parents in Malaysia spend 55% of their salaries on each child to complete tertiary education.
And things do not seem to be cooling off anytime soon when it comes to education.
One educationist even remarked that the future will be competitive to the point of parents – even middle-income ones – ensuring their children get quality education. This at the price of selling off their property and wiping out their savings.
The good news is with proper planning you don’t have to go to extremes in ensuring your children receive only the best in education.
Sure, sacrifices will need to be made now, but just like anything in life, an early start helps mitigate the financial pressure.
While you are planning that undergraduate roadmap, avoid these 4 costly mistakes:
Mistake #1: Not saving any money at all
Times are tough especially with the cost of living rising higher than wages but that doesn’t mean you can afford to not save up.
And that’s the biggest mistake someone can make: not saving for college at all. A survey by HSBC Bank found that a majority of parents were willing to empty out their savings and go into debt to finance their children’s education.
The main cause of concern: expensive fees.
The survey added that 57% of parents surveyed said they would go as far as taking up loans to fund their child’s university or college education despite having saved up earlier.
What this means is: going to extreme lengths to get your child that premium piece of paper may not be the wisest thing to do.
The Fix: Start with whatever amount you have. For motivation, the SSPN-i Plus is a good starter pack. The barrier to entry is very low, in fact you can start with commitment of only RM30 a month. The goal here is to start as early as possible.
The SSPN-i Plus comes with a guaranteed 4% annual interest, so to reap the benefits from this savings plan, you only need to opt for the Nilam package at RM300 monthly.
If you are sending your child to college or university in 18 years’ time, your contribution would have ballooned to roughly RM97,000 – enough for you to fund your child through to public university or even a local college.
Mistake #2: Not taking advantage of existing tax reliefs
If you are among the one million taxpayers in the country, it’s always good practice to keep abreast with tax reliefs – and not just during tax season!
These are set by Lembaga Hasil Dalam Negeri (LHDN), the tax board in the country, where Malaysians are able to deduct a certain amount of money expended in a certain assessment year from their total annual income.
What this means is tax reliefs can help reduce your chargeable income, and thus your taxes. If planned properly, you can save a huge amount of taxes.
The Fix: Maximise your tax reliefs. If you are investing a child’s education insurance policy – such as an endowment and investment-linked policies – you enjoy up to RM3,000 in reliefs.
The new lifestyle tax has kicked in and all expenditure, some which inevitably go to your children, allows you to save up to RM2,500 a year.
Plug into the SSPN-i Plus and you receive an annual tax relief of up to RM12,000 a year – RM6,000 for SSPN and another RM6,000 for takaful which is part of your SSPN-i account.
So, don’t take tax reliefs for granted, since these could help you target your money towards saving for your child’s education.
Mistake #3: Being straddled with debt
Also, many households in the country are a vulnerable lot, given the state of their finances.
Highly-leveraged with little savings, it is believed that many will find themselves in a quandary in the event of a financial shock which could stem from a job loss or changes in interest or financial markets.
And to put that into perspective: only 10.8% of Malaysian households would be able to withstand financial shocks.
The Fix: There are no two ways about this – start paying down debt as quickly as possible. The easiest to start is dealing with your credit cards. Paying the minimum just won’t do. Take advantage of credit card balance transfer or consolidate your debt with a low interest personal loan. You’ll also need to adjust your lifestyle and, perhaps, take up a second job to get this going.
The goal here is to free up your cash flow so that you’ll be able to channel those extras into savings. And by savings we are talking about building a buffer for your family and also for your child’s future.
Mistake #4: Not planning early
As a parent, you will definitely want the best for your kid. But turning that dream into reality requires effort, sacrifice and time.
Leaving your child’s college fund planning to the last minute could make or break his/her tertiary education dream. Here’s an example of how important saving early is:
If you only eight years to save for your child’s college fund, you will need to save about RM75,350 for a degree in Engineering in a public university.
However, if you start early when your child was still a newborn, you will have 18 years to save for his college fund. Even though the value of the same course has gone up to RM122,737 in 18 years due to inflation, you can boost the college fund by 60% when you save the same amount of RM300 a month.
To get a glimpse of how much it would cost to send your child to a university or college of your choice, check out this education loan calculator. The calculation will take into account inflation, and how to save for it.
If the numbers shock you, just remember this is just the fees. Lifestyle costs are a different matter altogether. A conservative estimate for cost of living while completing a degree locally is RM27,000 per year.
That’s a whopping RM81,000 just to survive while completing a three-year programme.
Sure, there are ample of financial aids available, such as the PTPTN loans and other scholarships.
But as noted above, graduates are struggling to pay off their PTPTN loans and as for scholarship, the competition is intense.
Your best bet is to hedge against these variables by simply providing your child with some savings and even if you are cash-strapped, RM30 a month is not much to ask for.
Parents opening an account with SSPN will also stand to receive an RM50 incentive under Geran Sepadan scheme (opening account for standard 1 children).
So take the first step, now! Check out our PTPTN calculator to understand how much you’ll need to set aside for your child’s education. After all, there’s no such thing as “overplanning” when it comes to your children.