Congratulations! Your child has successfully completed the Primary Exit Profile (PEP) and is eagerly awaiting the start of high school in September. At this juncture, parents and children are still revelling in the excitement of the recent PEP results and the prospects of a new school, with fresh opportunities and a range of experiences to garner and learn from beckons at the door. Some parents of children who went to prep school might also be breathing a sigh of relief about the reduced expenses associated with high school education.

Indeed, it might be tempting to breathe a sigh of relief, believing that the financial burdens of prep schools, especially with escalating school fees and all the additional costs, are now a thing of the past. However, if you have not yet begun saving for their college fund, it would be unwise to grow too complacent on the assumption that you have a five- to seven-year respite. Well, not if you envision your child pursuing a tertiary education, which has become increasingly crucial for their future financial success. Glancing at The University of the West Indies’ 2023/2024 payment schedule reveals that undergraduate degree costs can range from $350K to more than $1M per year, just for tuition. Therefore, delaying your financial preparations until your child completes high school would be ill-advised. By consistently saving now, although it may not cover the entirety of their higher education expenses, you can at least make a significant dent in these costs.

Ideally, the best time to begin a college fund is when your child is born. By leveraging compound interest and making systematic contributions to a tax-deferred or tax-free investment account over 18 years, until your child reaches college age, you can achieve substantial gains that will benefit them when they are ready to pursue further studies. The longer investment horizon allows the funds to grow, reducing the monthly pressure to set aside significant amounts to reach this savings goal. However, the reality is that many parents fail to prioritise this early in their child’s life as they grapple with economic hardships, particularly when multiple children are involved. Nevertheless, if your child is on the cusp of entering high school and no education fund has been established, the time to start saving for your child’s higher education is now.

What are some viable options?

Merely stashing money away in a regular account, which you may be tempted to tap into during emergencies, will likely yield minimal interest, possibly less than 1 per cent. The success of an investment lies in its earning potential through compound interest over time.

Consider opening an investment account that offers a 7 per cent annual return on a $5,000 investment monthly. Over seven years, the value of that investment would approach half-a-million dollars. With a $10,000 monthly contribution under the same conditions, the amount would exceed $1 million. Alternatively, parents or guardians can take advantage of a long term tax-free investment plan, such as (NCB) Omni Educator, which encourages parents or guardians to set a target investment goal to fund their child’s education. The fund accumulated plus interest is then used to pay the child’s tuition when they have been accepted into an accredited university. The child is also awarded a 20 per cent education grant, which can go towards tuition or other school related expenses.

A mutual fund or unit trust is also an excellent vehicle for saving for your child’s education. Managed by professional investment managers, mutual funds or unit trusts provide diversified investments across various securities, including stocks and bonds. Earnings depend on the mutual fund’s performance and may come from capital gains, dividends, or bond coupon payments, depending on the investments in the fund. Importantly, the gains in mutual funds and unit trusts accumulate tax deferred, and you only pay taxes upon withdrawal from your investment. Furthermore, the returns on your investment in a unit trust fund will be free of income taxes after five years. Most importantly, mutual funds are not as risky as other investments; therefore, considering this is for your child’s education, you are more inclined to save in a secured and safe investment vehicle.

The ideal situation is to start preparing for your child’s high school education early. By doing so, parents have the opportunity to save aggressively in tax-advantaged investments, allowing them to give their children the financial freedom and stability they require to pursue higher education. However, while no one can guarantee lifetime employment, one thing is certain: hard work and ongoing education will significantly improve employability and income potential. Therefore, by taking advantage of compound interest, you can save over a longer time horizon for your child’s education, which reduces the financial pressures to make sizable monthly payments to cover the expenses of higher education in Jamaica.

If your child is starting high school and you have not started saving for higher education, it’s not too late. Fortunately, numerous financial institutions are well-equipped to offer structured and convenient investment plans designed to help you to start investing today to safeguard your child’s future. Seek the guidance of a trusted finance professional who can assist you in devising the most suitable plan tailored to your circumstances.