Future Planning for Parents

With the joys of new parenthood come several important responsibilities. We know that you’d do anything to ensure the health and safety of your child. But what about less obvious, immediate concerns like safeguarding their dreams? One of the main ways to do this will be to guide them on their educational journey. Whilst helping steer them onto a career path that best suits their potential and abilities, you’ll also need to make sure you’re able to pay for the education needed in order for them to realise their ambitions. 

As parents, we need to determine what it would take for us to afford a good upbringing for our children. This assessment should ideally take place when we start planning to have kids, and evolve into a real plan on paper the moment our kids are born. So it goes without saying that financial planning for your children’s education also needs to begin early in their lives.

The costs of their higher education depend on each child’s preferred universities, when they’re expected to attend them, and the duration of the programs in which they enroll. And in order for your children to attend the university of their choice, their school education also needs to be top-notch. Private schools are reputed to offer higher standards of education, but they also come with substantially higher costs. The rule of thumb tends to be the better the school the higher its fees. Overall, an annual report published by HSBC states that UAE parents pay almost $100,000 on average to educate their children from kindergarten through the first four years of university. 

But before thinking about finances, you have to settle on the right school for your children. In Dubai, we have an estimated 195 private schools to choose from. Your choice will depend on a number of factors, including the school’s rating by the Knowledge and Human Development Authority (KDHA), its past record of student success, its proximity to your residence, and the quality of its teaching methodology, curriculum and extracurricular program. But one major factor to consider is the cost of sending your child to that school.

While school fees have been sharply rising in Dubai in the past decade, the increase stalled in June 2018 when the Dubai government ruled that private schools in Dubai could not increase their fees in 2018-2019. And it appears that school fees may not increase for another year given that some major private school chains have announced a fee freeze and are introducing more affordable schools to their roster.

According to education guide EdArabia, school tuition in Dubai currently ranges from AED 2,479 (USD 675) to AED 130,000 (USD 35,394) per year, not counting the associated costs of admission fees, transport, uniforms, books, and stationery.On average, parents in the UAE have been reported to pay the second highest school fees in the world. More than half of Dubai’s school-going children attend schools costing more than AED 20,000 in annual tuition fees.

“How do I begin planning to meet these education costs,” you may be asking yourself. Well, just like education is an investment that pays off in the long term, its financial planning also requires foresight, strategic planning and charting out a course for the sort of opportunities you want your children to have. The effort taken to plan these costs greatly reduces their burden. You can build up savings for your children’s university education by either investing a portion of your monthly income or investing a lump sum, if it’s available. Some parents are able to use both methods, which is always beneficial.

Your savings are typically utilised for a number of financial goals, such as having an emergency fund, saving for a house or car, or financing the occasional vacation. It’s imperative that your child’s education funds are not sidelined in the midst of so many goals.

One way to ensure that this doesn’t happen is to open a savings account specifically for their education and deposit money into it on a monthly basis. This is a good first step that will help you to grow your savings for more immediate, short-term goals like school admission fees. However, it will unfortunately not serve you in the long-term, given that education costs are rising faster than interest rates.

As a result, you’re likely to lose money by depositing it in a savings account for long periods. For future education costs, you will have to make investments such as regular savings plans in order for the growth of your savings to outstrip the inflation rate, with the kinds of investments you make dependent on your child’s age, your savings goals and your appetite for risk.

A qualified financial advisor will make recommendations about the kind of investments you should make based on a professional assessment of your finances. When your child is young, you may consider making growth investments, which are high in risk but allow your capital to grow quickly. Given that you will not be required to liquidate the investment until your child is older, you will be able to withstand the market fluctuations and enjoy the profits of holding the account. Good options include equities, stocks, and stock mutual funds. Once an investment has matured, you can reinvest the earnings or make similar investments. Using this strategy, the value of your investment portfolio should grow.

When your child grows older and nears university age, you may gradually begin converting your growth investments into safer value investments, such as equity income funds. Although your capital grows at a slower rate, the values of these stocks tend not to fluctuate wildly and can be relied on to earn a good profit upon liquidation. If stock prices shoot up unexpectedly, you can even sell them before you need the funds to secure those profits. Otherwise, it’s recommended to set the liquidation timeframe around your children’s tuition schedule. When deciding to liquidate an investment, make sure you factor in the taxes and surrender fees you are bound to pay so that those deductions don’t catch you by surprise and you don’t unexpectedly end up short on funds when you need it.

So, remember that with the right allocation of your assets in growth and value investments, your child’s educational journey can be a stress-free experience for your family. To understand more about your options, request a complimentary consultation with one of our expert advisors who will guide you through the process of creating a plan that works for you.

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