Motherhood Magazine
Welcome to Motherhood - Pakistan's first parenting Magazine

Dad Zone

The title of this publication can be misleading at times. Though catering basically to the primary caregivers - mothers, Motherhood has something to offer for every member of the family. Fathers, don't fret. We have a designated section for you, where articles related solely to your interest are presented. We realize that fathers too have a very important role to play in the upbringing of the children, and without the involvement of a father figure, we cannot aim to raise well-rounded progenies.

Financing Higher Education

Planning for Your Child's Education

We often hear our elders talk about out the good old days when life used to be simpler and easier with a comfortable balance between time for work and leisure. Even those of us in our middle ages now feel that things have changed a lot since our childhood. A part of this feeling is the natural nostalgia, which only increases as we grow older, but does not necessarily mean that the past was indeed better. However, much of it represents real change in our social and economic structures in a relatively short time period. These changes have influenced almost all facets of our life and even pursuance of education and profession has not escaped it.

Until about 15-20 years ago, civil service and armed forces used to rank near the top of the career choices for young adults from middle class families and even those belonging to the aristocracy. Most would get primary and secondary education at state or missionary schools and later study at government universities for higher education. Government was a desirable employer as well as the main education provider. However, all this has changed in less than two decades. Civil service and armed forces do not feature in the list of preferred careers anymore and the government’s education system has fallen into decay. Private sector today is the preferred employer and education provider. However, while public sector education was and remains heavily subsidized, private education is many times more expensive. This is an unpleasant but inescapable reality of our times and we need to learn to live with it.  

After housing, children’s education has become the biggest financial outlay for an average middle-income family. A four-year undergraduate degree from a good private university currently costs between Rs.1.5-2.0 million. However, this will only increase over time due to inflation. If you have a three-year-old child today, you will need Rs.3.6-4.8 million for her college education after 15 years, assuming college education costs increase at a relatively modest rate of 6% per year.

We cannot risk flying by the seats of our pants when it comes to our life’s important financial matters. It is important to plan carefully and then adopt strict discipline in adhering to those plans to avoid regrets later in the life. The question is how to do it. While each family has its own unique circumstances depending on the family’s financial position, number of children and their ages, there are some broad rules that may be followed in this regard.

The first rule is to start early. The sooner you start planning for your child’s college, the easier it will be on your household budget. Starting early will keep your regular contributions towards to your child’s college education fund smaller while giving you more freedom for adjustments according to your financial position.

The second rule is estimating the amount and time period of your child’s college education fund. Assuming that you start planning at the birth of your child, you will have 18 years to reach your target amount. For anyone starting later will have to reach the target amount in a shorter period. You can estimate your target amount for the fund by increasing the current cost of a 4-year college degree at 6-8% annually for the number of years remaining until your child reaches 18 years of age. A college degree costing Rs.1.5 million today will cost around Rs.4.3 million in 18 years, assuming inflation at 6% pa.

The third rule is devising the funding and investment plans for your child’s college education fund. The funding part is essentially determining your regular contributions towards the college education fund which are interrelated with your investment plan i.e. where the college education fund will be invested and how much return will those investments likely generate. Even large target amounts can be achieved if funds are wisely invested. For example, a target of Rs.4.3 million in 18 years could be achieved, by starting with a monthly contribution of Rs.3,900 only and increasingly it by 10% each year (i.e., 4300 in year-2, 4700 in year-3 and so forth) if your investments could generate a return of 13% per annum. There are wide a variety of options available for investing your child’s education fund including government’s National Savings Schemes, Fixed Income Mutual Funds, Stock Market Mutual Funds, etc. Your investments should be well diversified with bigger share of relatively higher risk investments such as stock market mutual funds in the initial years and gradually increasing the share of fixed income investments such as Fixed Income Mutual Funds as you move closer to the time when you will require using the college education fund. It is better to seek advice from a professional investment manager in deciding about your investments.

The fourth rule is maintaining strict discipline in making your contributions to your child’s college education fund. These contributions should be viewed as mandatory as your utilities bills and therefore should not be skipped, delayed or abandoned. Lowering contributions temporarily shall raise the amount of future contributions to reach your target amounts for the college education fund.

The fifth and final rule is reviewing your child’s college education fund performance at least on annual basis and making adjustment to funding and investment plans as needed.

Following the above rules shall hopefully enable you to fulfill your parental desire for the best education for your child.