Financial Planning, Budgeting, Pandemic, Emergency Fund
One of the things that parents need to prepare for is the cost of their children’s education starting from kindergarten through to university.
Although free state-run education is available at elementary level, parents still need to personally fund playgroups or pre-nursery classes.
Undoubtedly as a parent, you want the best for your children. You may want them to attend private schools that offer state-of-the-art facilities and teaching or have private tuition for specific areas. Unfortunately, not everyone has the financial means for such expenses.
Many parents who start saving too late for their children’s education are likely to face constantly increasing cost of education, which has been rising in Indonesia by 15% to 20% per year.
Parents should plan as early as possible, so they can support their children’s future requirements as they grow. Various types of insurance plans including savings and investments can support parents.
Before you start to plan for your children’s educational future, you should consider the following:
Review the different schools you might want your kids to attend. You can easily find information about the advantages and disadvantages of different schools, to make the right decision for your children. Other aspects you should consider include the school’s accreditation, facilities and infrastructure, distance, and travel time from home.
It is essential to calculate the required budget as this helps to inform you how much you need to save. Include the admission charges, tuition fees, books, uniforms, transportation costs, and so forth. After that, compare these costs with the facilities and the education that the children will receive.
After collecting the information related to the intended school and costs, you should be ready to consider an education savings plan.
Education savings plans are special tools that are guaranteed by the Lembaga Penjamin Simpanan (LPS)1. Simply put, the duration of the investment is determined by you, and the plan will generate a certain amount of interest on your principal amount.
This savings plan comes with additional benefits, such as health insurance and life insurance. If you become bankrupt, the saving will still be protected even if there will be some fees.
Another option is education insurance, which differs from savings aspect, because it has a time limit for withdrawing the money for Children’s education.
The money is disbursed if your child wants to enter elementary, middle, high school and college. By withdrawing this money, you can get a sizeable boost in your education savings plan.
However, you’ll be penalized if you decide to draw the education fund before the due date.
As a breadwinner, health insurance is undoubtedly a must-have given that health costs continue to increase year-on-year. According to a Willis Towers Watson survey2, the gross increase in health costs ranges from 10% to 11% per year in Indonesia.
Certainly, BPJS and private health insurance can complement each other in securing educational finance for your children in case of any unexpected situations. However, not all diseases are covered by health insurance like BPJS, but insurance will offer flexibility in the hospital treatment process and selection.
As a breadwinner, you need to ensure your health insurance plan is supplemented with life insurance.
If something were to happen to you while you are still supporting your children, you want to make sure they are financially provided for.
Depending on the amount of the sum insured, the payment your children receive could allow them to pay off any mortgages or debts, as well as secure their financial future by providing for future expenses in the short run, such as education fees.
The above are some considerations when planning how to save for your children’s future educational needs effectively. In addition to saving money for an educational fund, as a parent you should have life insurance and health insurance in place as a priority.
These tips were created by Aulia Akbar CFP®, a financial educator and researcher of Lifepal, as part of the collaboration with insurance marketplace Lifepal.co.id.
1 Lembaga Penjamin Simpanan (https://www.lps.go.id/)
2 2021 Global Medical Trends Survey report (https://www.willistowerswatson.com/en-SG/Insights/2020/11/2021-global-medical-trends-survey-report)