Three low-fee funds offer parents a tax-free savings solution, so that every cent saved goes to tuition fees, and not the taxman
Every generation of parents think they have a harder job than the one before. It’s debatable whether parenting through the generations has become tougher. What’s indisputable, though, is that the parents raising Gen Z (9-24 years) and Gen Alpha (1-13 years) have it tougher financially — especially when it comes to saving for their children's tertiary education.
This is true for parents across the globe.
Adjusting for currency inflation, college tuition in the US increased by 169% between 1980 and 2020, according to a report from the Georgetown University Centre on education and the workforce. As China grapples with economic slowdown, the increase has been steeper over a short period, with students faced with university tuition fee increases of up to 54% this year alone.
In SA, low economic growth, high inflation rates and steadily increasing tuition fees over several years has made it harder for parents to save for tertiary education.
On average, tuition fees at the University of Cape Town (UCT) increased in real terms (adjusted for inflation) by nearly 400% from 1923 to 2020, and by 300% from 1970 to 2020, according to an article published in the South African Journal of Higher Education in 2020.
The same article reported that, in terms of affordability (taking into account changes in tuition fees and in average income, approximated by per capita GDP), “the combination of modest economic growth and rapid increases in tuition fees has made university education at UCT substantially less affordable” since the 1990s. And “substantially” is an understatement here, because the percentage of per capita GDP required to study at UCT doubled between the early 1980s and 2019.
While this article’s findings were UCT specific, the trend is more or less consistent across tertiary education institutions in SA. Most of the blame for this trend can be pinned on SA’s low economic growth over the years, resulting in the government having less money to invest in tertiary education.
The drying up of government funds has forced universities and technical colleges to increase their reliance on tuition fees for income, which has placed more financial pressure on students, their parents and/or funders.
Education vs employment and income
It’s a cruel irony that, at the same time saving for tertiary education has become more difficult, tertiary education has become more crucial to give your child a chance of one day finding decent paying employment.
Stats SA’s most recent unemployment report shows the clear distinction between the unemployment rates across various education levels. Of the 32.8% of unemployed adults in SA in the fourth quarter of 2022, 48.3% did not have a matric, while 40,7% had a matric. In contrast, graduates only accounted for 2.7% of unemployed South Africans, while 7.5% had other tertiary education.
And it’s not only your child’s chances of employment that increase with tertiary education; their potential earnings increase significantly the more educated they are. Stats SA reported that a matriculant can expect almost double the salary of a high school dropout, where a tertiary certificate results in a 67% jump in potential earnings and a bachelor’s degree brings a huge 330% increase in salary.
Global marketplace competition
A tertiary education is now also essential to prepare your child to enter and compete in an increasingly globalised marketplace, where a degree or qualification gives one a better chance of success.
This is borne out by the 2022 Education at Glance global survey, conducted by the Organisation for Economic Co-operation & Development. The survey found the average global unemployment rate for individuals with a tertiary education was just 4% compared with 11% for those with secondary education only.
And global competition will only become fiercer as Gen Z and Gen Alpha enters a workplace where more people than ever before have tertiary education.
The number of tertiary education students worldwide more than doubled between 2000 and 2021, from 100 million to 220 million. That number, according to the World Bank, is expected to reach 300 million by 2030 — by which point China and India are predicted to account for nearly half of all degree-holders worldwide.
Are parents keeping up?
The Georgetown University report found the average American saved about $5,000 (R92,967) a year. At this rate, it would take them about 75 years to save enough cash to send one child to a top-rated US university.
There are, unfortunately, no reliable statistics on how much South Africans are saving for their children’s tertiary education. But considering we, as a nation, are notoriously bad savers, it’s safe to say most South Africans are saving far less than this.
The only viable solution is to start saving now, and to save wisely. The rate of tertiary fee increases is likely to outpace the standard interest rates offered by most fixed deposit type savings accounts, so the wiser option is to invest in funds that have the potential to outperform interest rates over time.
It’s also wise to invest in funds with the lowest management fees, because high fees can erode your investment’s performance over time. Lastly, the wisest move you can make is to invest in a tax-free savings account so that every cent saved toward your child’s education, and not the taxman.
It was with this in mind that we launched Sygnia Stargazer, a trio of low-fee index-tracking funds offered as a tax-free savings account vehicle.
Sygnia also wanted to create a savings product that was easy to understand, access and administer. As such, parents simply need to open a Stargazer account in their child’s name, choose the risk level and basic underlying assets of what they would like to invest in (Stargazer Blue invests in future tech; Stargazer Green invests in sustainability; Stargazer Yellow invests in a broad, low-risk portfolio) and then set up a monthly debit order from as little as R500 a month.
Stargazer is not a money-spinner for Sygnia. This savings product was designed by parents in the organisation to help other parents in SA save for their children’s tertiary education.
Source: https://www.timeslive.co.za/sunday-times/lifestyle/2023-08-04-native-sygnias-stargazer-can-help-give-your-child-a-stellar-tertiary-education/