Published: August 23, 2018 | Updated: May 29, 2020 | Posted by: Venus Zoleta | Personal Finance
Have you started saving for your child’s future? If so, are you saving enough?
To say that it’s expensive and overwhelming to prepare financially for a child’s education is an understatement. But it’s doable, as long as you do it early. The moment you become a parent, it’s important to learn how to save money for huge expenses in the future such as college tuition.
Now, you might be asking: how much do I need to save to provide for my child’s education? The amount you need to set aside for building your child’s tuition fund depends on a lot of factors, including the cost of education, how long you’ll save, and everything in between.
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Before you compute the amount to save for your child’s education, consider the things that have an impact on the future cost of education.
Do you dream of sending your child to one of the top universities in the Philippines? You should be working harder and saving more because many of the best colleges in the country are expensive.
Your choices are limited if you’re looking for schools that specialize in fields like business, accounting, engineering, medicine, IT, and arts. If the schools on your shortlist all charge high tuition fees, you must either build a huge tuition fund or keep looking for more affordable choices.
Another option to consider is a state university or college covered by the free tuition law (Republic Act 10931 or the Universal Access to Quality Tertiary Education Act). Qualified students in premier state universities like UP and PUP no longer pay for tuition, miscellaneous fee, and other school fees starting in the academic year 2018-2019.
However, the free tuition law has numerous conditions and restrictions, so you don’t know for sure if your child will qualify for it. Also, it isn’t certain if this law will still be implemented by the time your child enters college.
Once you’ve determined your target college, find out how much the current tuition is in that particular school. You can find the information on the school’s official website or through search engines for Philippine colleges.
For your quick reference, here’s a list of some of the top universities in the Philippines and their current annual tuition, arranged from the most expensive.
|Top Universities in the Philippines||Estimated Yearly Tuition as of 2018|
|De La Salle University||PHP 205,000 – PHP 225,000|
|Ateneo de Manila University||PHP 160,000 – PHP 180,000|
|Mapua Institute of Technology||PHP 125,000 – PHP 150,000|
|University of Santo Tomas||PHP 90,000 – PHP 110,000|
|University of the Philippines Diliman||PHP 40,000 – PHP 50,000|
|Polytechnic University of the Philippines||PHP 2,000 – PHP 4,000|
Think you can afford these current tuition fees? Wait until you factor in the future cost of education.
Tuition in the Philippines increases by an average of 10% every year—about twice the country’s average inflation rate of 4% to 5%. While the cost of education rises exponentially, household incomes don’t grow as much.
Can you already imagine how costly it will be to fund your child’s education?
Your kid’s age today will determine how long you’ll have to save for his or her college tuition. A parent with a newborn has 18 years to prepare for the child’s college education. That’s easier to manage compared to building a tuition fund for a 10-year-old kid or older. The shorter the time left for you to save, the bigger the money you have to set aside per month or year.
Now that you know the factors that affect the cost of college tuition, you can compute the amount you need for securing your child’s education in the future. To make it simpler, calculate first the cost of education of your child’s first year in college. Use this formula: Cost of College Education = Current Tuition in Target School x (1.10 ^ Years Until College).
For example, you want your three-year-old to study in UST 15 years from now. With its current annual tuition of PHP 110,000, the estimated tuition cost for 2033 is computed this way:
PHP 110,000 x (1.10 ^ 15) = PHP 459,497.30 (You can use this Future Value calculator for a quicker computation).
That’s for the first year of college alone. You also need to compute for the remaining years in college, taking into account that tuition goes up by 10% every year. To get the total tuition cost, multiply the estimated tuition for the first year (PHP 459,497.30) by 1.10 for every year that your child will study in college and then get their sum.
Assuming that your child will complete a four-year course, here’s how much it will cost you for every year in college:
|Year in College||Estimated Total Tuition|
|First Year||PHP 459,497.30|
|Second Year||PHP 505,447.03 (PHP 459,497.30 x 1.10)|
|Third Year||PHP 555,991.73 (PHP 505,447.03 x 1.10)|
|Fourth Year||PHP 611,590.91 (PHP 555,991.73 x 1.10)|
|Total Tuition||PHP 2,132,526.97|
The estimated total tuition cost is over PHP 2 million, which will be your target amount to save for your child’s tuition. The actual cost may be higher or lower depending on your target school, the tuition cost, and how long you’ll save up for it.
Practically speaking, not every parent can choke up millions of pesos out of their bank accounts to pay for college tuition. How to save money realistically for your child’s education? Save up each month until your child enters college. By spreading out the cost of paying for college, saving for the total tuition cost becomes more manageable for parents.
Based on the sample computation above, a parent needs to save at least PHP 142,168 every year or PHP 11,847 every month in 15 years to be able to send a child to UST for four years.
However, setting aside more than PHP 10,000 monthly for the college tuition fund can be burdensome for many parents. Rather than just saving straight-up, invest your money in an instrument that yields a return of around 8% to 10% or higher. Just a word of caution, though: don’t fall for online investment scams that are rampant these days.
Investing will help bring down your monthly savings while still meeting your tuition fund goal. You can start putting your savings in mutual funds, stocks, VUL insurance, or other investments. Another great idea is to start a business to augment your family’s income and savings. If you’re worried about getting enough capital, consider getting a low-interest personal loan.