This week's Money Doctor question comes from Sanjay Khan, a Sharjah-based managing director, who is originally from the United Kingdom. He asked: "My wife is soon to give birth and I know education fees can be very expensive as an expatriate, so I am keen to ensure I have the right savings plan in place to give my child the best opportunities life can offer. I went to a university in the UK and would prefer that my child follows in my footsteps one day."
Sanjay, first I should say that fees can indeed be very expensive as an expat and a high percentage of relatively affluent expatriate children will go all the way through to further education. Here at PIC, we deal mainly with expatriates and, in general, they tend to have primary and secondary education either paid for by their company, or instead choose to factor the cost into their monthly salary.
It is very rare for us to establish a structured short term savings plan for a child's primary school fees, as it is too short a period to save enough – based upon the child starting school at four or five years old. It makes more sense for the parents to factor these fees into their outgoings and instead consider university fee planning, which is highly likely to be a major expense, but also far enough in the future to comfortably plan for over the coming years.
If you would like your offspring to attend a mid-range UK university, it would currently cost around Dh504,000 per student, based upon a four-year course. The UK university fees have been and are continuing to experience high inflation, currently at around 7.5 per cent per annum. Therefore, based upon this high inflation rate, by the time your son or daughter chooses their further education establishment, the savings plan you have paid into for 18 years is likely to make your life considerably easier financially.
Your savings plan can dramatically reduce how much you need to put away each month to cover the eventual tertiary education fees through dollar cost averaging - investing into different asset classes on a monthly basis, targeting returns of approximately 8-10 per cent per annum.
At the end of the 18 years, the total sum for the child's university fees can be withdrawn from the plan and deposited in your bank account or used to pay the fees directly.
All things considered, a good education is the best gift you can give your children and you should speak to a reputable financial advisor in order to choose the best plan for you.
- Independent Financial Advisor Gavin Smith analyses readers' portfolio for Emirates Business. He is Area Manager for consultants PIC, a member of the deVere Group of companies. Write to him at firstname.lastname@example.org