Getting your child’s future education plan right

Wednesday, August 24th, 2022 08:20 | By
Ruth Mwihaki and her two children. She withdrew her education policy halfway, thus lost money. PD/KWACH WAKHISI

When  a child is born, their parents wish and desire is that they will accord them a bright future, and ensure that all their basic and financial needs are met.

That is why today, many parents have resorted to safeguard their children’s future by saving for them, either through a savings account or taking insurance policies.

Ruth Mwihaki is a mother of two children aged seven and four years. Her desire has always been to see her children reach their full potential by achieving their dreams. And that is why she decided to take an insurance policy for her children, which she later withdrew and settled for a junior savings account.

“Success starts with equipping our children with quality education. As we all know, the cost of quality education is becoming expensive in the country and therefore, a good investment plan comes in handy,” says Ruth.

Ruth shares how parents invest with emotions with the question ‘What if’ in their minds. They do not know how these policies work and the risks involved.

“What if I don’t afford them in future? What if I die? What if I lose my job? These are the common phrases used by insurers. I noted that a lot of parents have invested in policies that they know little or nothing about other than ‘paid on maturity’, say after five, eight, or 10 years,” she explains.

She says insurance policies come with a lot of pros and cons, hence there is need for one to understand the risks involved as much as the benefits. 

Discipline and consistency

Ruth offers: “Policies call for a lot of discipline and consistency. On the other hand, their return rates are not as competitive considering they are long term investments. If payments are skipped, chances of losing your savings are high. My experience with insurance wasn’t that good and it’s not something I can consider again. I withdrew my policy after saving for  one year and four months and lost my money, yet my agent had assured me in case I withdraw after a certain period of saving, I would get a refund. So, any investment plan requires one to be cautious. Before involving yourself in any long term saving policy, do thorough research to be on the safe side. Read the documents and understand before putting the pen to paper!”

After dropping the policy a year ago, she settled for a junior savings account, which allows her to save small amounts of money without having to worry about deadlines and at her own pace.

“Plan early, that is the secret to have a good financial plan,” she says.

 Leah Chiira is a mother of four children aged six, five, three and one year. She has taken insurance policies for all her children.

Together with her husband, they made the decision to save for their children’s education because of the hard experience she and her siblings went through.

“My parents wanted the best for us. We started off in good schools, but as the years went by, they experienced a strain in their finances and they couldn’t pay our school fees. That is why I made a personal decision to be wise on how to save for my children’s education, especially for their later years. Since we are still energetic and can raise the money needed for school fees, we are planning for tomorrow because no one knows about tomorrow,” explains Leah.

She adds: “For us, insurance is not a form of investment or saving, but just a way to secure our children’s future. We have accepted that insurance won’t give us good returns, but at the end of the day I am not losing any money and it is giving me an easy mind to know that in case of anything, God forbid, my children will be safe and well covered,” Leah says.

Apart from the insurance policies, they also have other savings options as a back-up. She offers: “My husband and I believe that we should not stagnate on one thing. If something happens to me, God forbid, and my children need money and the insurance companies are taking some time to release the money, their lives and that of my husband need to continue. We have those savings accounts whereby in case you are in a fix, you can easily withdraw and life moves on. I look at high return investments and don’t believe in saving money in the bank since the amount will just remain the same. Bonds and money market funds have also been beneficial.”

Sheila Mmboga, a financial literary expert and entrepreneurship coach says saving for your child’s education and future at large is the best gift you can give to them.

She says recent studies show that college fees will keep rising and unless something changes in how people pay for education, they will experience a financial strain.

Small steps

“Saving for your baby’s future is a brilliant and selfless act beneficial to both you and your child. Investing in your child’s future starts the day they are born or even before,” says Sheila.

“Understanding your options for saving and investing in your baby’s future is one of the first steps to getting started.  Like every other big expense, saving for a child’s education or future requires proper financial planning. You can start with a savings account or money market account that will give you interest on your money,” she adds.

Sheila shares how one can also practise the Sh2,000 rule as a guideline for college financial planning. “The rule suggests that you multiply your child’s age by 2,000 to come up with a college savings target. For example, if your child is five years, then your college savings should be Sh10,000; if they are 15, then you want to have Sh30,000 saved. By the time they reach 18, your Sh36,000 college fund can help cut college costs by half, and you can make up the difference with scholarships and student loans.”

A child education plan can also help you be financially prepared for any challenge that can otherwise ruin your child’s career. 

“You can start by paying a small amount of premium now and be future-ready. However, before signing up for any education plan, ensure that you read and understand the terms of the policy,” Sheila advises.

Starting with even a small amount of money contributed monthly can make a big impact by the time your child attends post-secondary school. Making automatic contributions can be a life saver, even if they are small.

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