Millions of parents all over the world aspire to send their children abroad for education. Countries such as the USA and UK have lured international students to their shores for decades.
In 2017, HSBC surveyed over 8000 parents in 15 countries and compiled The Value of Education report that included these key findings:
- Over 4 million students around the world enrol in universities overseas to gain international exposure and cross-cultural competence and improve their language skills.
- On average, 41% of surveyed parents would consider sending their child to a university abroad. This figure is much higher for parents in the Middle East and Asia: 55% in India, 60% in Indonesia and 65% in UAE.
- The USA continues to remain the most popular study-abroad destination for students and parents worldwide, followed by Australia, the UK, Canada and Germany.
The report also found that 82% of parents are willing to make personal sacrifices such as giving up leisure activities and holiday plans if it means ensuring their child’s educational and career success. Concurrently, about 40% of the parents interviewed for the study worry about the cost of international education and consider it the biggest impediment to their actually pursuing this goal on behalf of their child. Although the sample size in HSBC’s survey is fairly small, we can extrapolate many of the findings from the report and assume that the trends highlighted in it hold true for the wider world population and will continue to do so for the foreseeable future.
The report’s facts notwithstanding, many parents are committed to funding their child’s international education; and this is true not only at the primary and secondary levels but even at the postgraduate (tertiary) level. However admirable this mindset, many also do not know how much it would cost in future for their child to study at an overseas university. Due to inadequate or late planning and a widespread lack of knowledge about fees, living expenses, investment options, inflation and exchange rates; many students and their parents are unable to convert the ‘study abroad’ dream into reality. Even if parents do somehow manage to send their children abroad to realise their dream, insufficient planning, in the beginning, means that they greatly risk their own future financial health.
In this article, we have compiled a list of practical financial planning ideas that parents can implement to make the study abroad process a little less stressful and a little more ‘results-oriented’. After all, of what use is a plan that doesn’t help you realise your goals or make your future life easier? With these tips, you can help your child not only fulfil her dreams, but also maintain your own long-term financial health and stability.
So, without further ado, here are some things to consider when planning your child’s overseas education journey:
1. Start Early But Also Think of Long-Term Financial Planning
We can’t say this enough: Planning is absolutely essential!
Start planning for your child’s international education as early as possible. As a parent, you might have to make some personal sacrifices now so that your child can reap the benefits of an international education later. Review your spending history and cut down on non-essential expenses (eating out, movies, etc). Put some funds aside for your child’s education and do this at regular intervals: a fixed amount every week or every month is ideal. In addition, investigate multiple avenues for investment and saving. Figure out if saving a part of your regular income will meet the future long-term educational needs of your child, or if you need to create a more comprehensive multi-instrument financial plan.
And as part of the advance financial planning process, also think about locations you’d consider sending your child to. Most popular education destinations are highly developed countries with a significantly higher cost of living than developing countries like say, India, Mexico, Vietnam or Nigeria. You must consider the differences in cost of living and then incorporate these details into your plan right at the beginning.
By saving and investing from an early stage, you are more likely to minimise your need to borrow funds (debt) and thus lower its impact on your future financial health.
2. Consider Cost Forecasting & Add It To Your Plan
Playing devil’s advocate will work in your favour!
Tuition fees are not the only cost associated with studying abroad. Other costs such as student health insurance, academic supplies, cost of living (accommodation, food, conveyance) and entertainment can add a significant amount to your original budget. Make sure you consider these expenses when you design your plan.
While planning and budgeting, you are likely to be better off if you expect higher costs and thus save extra, than if you save less now and ‘hope’ that it would be enough later. After all, “hope is not a plan” (Anderson Cooper). This pessimistic mindset will actually help you increase your chances of creating a future corpus that exceeds actual costs at that time. And the more you can contribute from your own savings or investments, the less you will have to borrow on interest (say, through a bank’s education loan) when the time actually comes. This will not only lower your eventual debt burden but also shorten your repayment timeframe. And if you expect to still be working at that point in future, your regular income plus your lower repayment obligations are more likely to make your post-retirement life smoother and less bogged down by financial worries.
You Might Also Like To Read: 7 Best Cities To Study Abroad For Students On A Budget
3. Factor In Inflation & Exchange Rates
Understand why they matter!
For decades now, the US Dollar has been one of the world’s strongest currencies, with almost every other currency depreciating against it over time. If you are from a developing country, assume that this trend will hold true for your home currency in future as well (not only with respect to the USD, but also with many other strong currencies as well: GBP, EUR, AUD, etc). Therefore, irrespective of your timeline, i.e. when you will send your child abroad to study, you must factor in your country’s inflation rate and your currency’s possible depreciatory movements in your study abroad plan. For your country, research past inflation and depreciation patterns and use this information to calculate the extra amount you need to add to the education savings fund you have already started accumulating for your child.
The longer your time horizon, the more latitude you have for investing in high-risk instruments such as equity that can help you counter the effects of inflation and exchange rate fluctuations in the long run.
4. Find The Right Investment Options
One of the best investment advice you will ever get: Don’t put all your eggs in one basket!
Even if your child’s foreign journey is years away, simply creating an education fund from your current regular income may not be enough to meet your child’s future needs. This is because, in the future, the cost of living is likely to be higher than it is now, due to a number of factors including inflation and exchange rate movements. To mitigate the effects of these potentially higher costs, you need to find additional sources of funding now, that is over and above your (and/or your partner’s) salary income.
Therefore, you should research medium- and long-term investment options that you can start investing in as early as possible. Understand your own risk appetite and investment capability, and invest accordingly. Look for mutual fund-based Systematic Investment Plans (SIP), education savings/investment plans or education-specific insurance vehicles. We have already mentioned that starting early is critical. But so is diversifying your investment portfolio. A diversified approach with an eye on the future will give you time to design a dynamic investment strategy with the flexibility to change your asset allocation (equity, debt, gold, real estate, immovable assets, etc) according to fluctuations in domestic and international markets, as well as changes in your risk appetite, expense profile and income.
5. Talk To An Investment Expert Or Study Abroad Expert
Don’t worry if you don’t know everything – seek help!
The process of planning for an overseas study sojourn can be overwhelming for most people. Even if you start early, prepare a budget, create a costing plan and research available investment options, you may still feel stressed out and underprepared with your strategy and action plan. If you find yourself in this position, it may be a good idea to talk to a professional. Investment advisors and study abroad experts can help you explore the available options and draw up a more comprehensive and realistic plan. You may even learn of new options that you were not previously aware of or had not considered in the past.
Planning the financial nitty-gritty of a foreign education for your child can entail a mind-boggling array of details, but with systematic planning and a pragmatic approach, you and your child can both reap the future benefits of this worthwhile goal.