How Much Do You Need to Prepare for Your Child’s University Education in Singapore?
As a parent, you would want to provide your child with the best education you can afford. With the increasing number of graduates in Singapore over the years, preparing for a child’s university seems to be in the book of most parents.
University fees can amount to a sizable amount, and planning for it may be difficult, especially when your child is still young. Plus, it is common knowledge that university education is on the rise and it would only get more expensive in the future.
In this article, we have compiled the cost projections of funding a child through university. You can use it as an estimate of how much money you would need to set aside for your child.
#1 — Determining today’s University Fees
We will use National University of Singapore (NUS) as a benchmark. As of 2015, NUS is charging $25,400/year for medicine, $12,400/year for law, and $7,950/year for most other courses such as Engineering (for Singapore Citizens).
These fees are what each student would have to pay after applying the full Ministry of Education’s tuition grant. In total, you would have to pay almost $31,800 for a 4-year degree (or up to $127,000 for an 5-year medical degree).
#2 — Determine the Rate of Fee Increment
We will compare the 2015 course fees with 2008’s, as the latter were the earliest data we could find. Using that data, we determined the compounding annual growth rate (CAGR) of the course fees over the years.
We have also included the fees for Singapore Permanent Residents and International Students in the following tables.
Tuition Fees for Singapore Citizens
Tuition Fees for Permanent Residents
Tuition Fees for International Students
The rate of increase in tuition fees are higher for Permanent Residents and International Students across all courses.
Law has seen the highest climb in tuition fee. On average, university fees increase by 5% per year on the average.
#3: Project the Cost
The number of years to prepare for your child’s education would depend on his or her age.
It would be difficult to forecast which degree your child would eventually enroll for.
But to play safe, it is better to prepare the sum enough for the most expensive course, which is Medicine.
You can use a simple interest calculator from moneychimp to calculate your projected cost.
I have attached a screenshot to help you with the parameters to enter.
- Current Principal is the course fee in 2015 (Refer to #1 above). Remember to multiply the course fee by the number years required to complete the course.
- Years to Grow is the number of years you have left before your child enrolls for university.
- Interest Rate is the CAGR calculated in #2.
- Remember to click on the option of “Make additions at end of each compounding period”
There you go, the estimated cost of a medicine degree in 10 years’ time would be $206,869.62 for a Singapore Citizen studying in NUS.
It is important to note that we have yet to calculate the living allowance for your child. This figure is the estimation only covers your child’s education cost.
Step 4: Explore Options to Grow the Education Fund
One of the favourite options to fund for education fund is the endowment fund, as reported by financial advisers.
However, if we look at the increment rate for university courses of 3% and above, it is unlikely endowment policies can perform better than that. You would have to put in higher premiums to meet the savings goal.
Alternative options with higher returns would be corporate bonds and stocks. But it would be highly dependent on the time you have to build the your child’s university fund. If your child is entering university within 5 years, it would be quite risky to put that capital into stocks. Corporate bonds would be relatively safer.
But few things in life are binary in nature. You can grow the education fund using a combination of tools. For example, buy a term insurance to provide coverage in case you pass away before you could save enough for your child’s education, buy a hospitalisation plan in the event you are so sick, set aside a sum of money in Singapore Savings Bonds to earn close to 3% per year safely, and invest some money in an index ETF for higher returns. The combination would probably lower your risk and increase your returns overall.
This article does not serve as any form of financial advice.
The original article was published on BigFatPurse in 2015.