Funding school fees can be one of the biggest financial commitments an expat family can make and something that provides lots of parents with sleepless nights worrying about how they’ll make ends meet. Here we look at some of the key ways to plan and prepare for these inevitable costs, so you never get caught short.
The key to affording school fees is to plan and prepare as early as possible, it’s something you should probably consider from birth. Generally, parents looking to fund school fees either want to invest a lump sum or to set up a regular savings scheme, thereby spreading the cost.
In today’s money, it’s been estimated by Tanglin Trust that the lump sum required upfront to fund one child from kindergarten through to age 18 at an international school in Singapore is SG$725,000.
Not many of us have this figure lying around, so setting aside a regular amount each month is preferred. Using the process of ‘compounding’ means that any income or capital gains generated by your original savings becomes available to generate income or capital gains itself. This principle can have a significant impact in the regular amount required to achieve a fixed sum. For example, using a net investment growth rate of 7% per annum, if you wanted to save SG$1 million by 2026 you would need to put aside just over SG$5,745 each month. If you waited for five years, you would need SG$13,890 each month to save the same amount.
So the earlier you can start saving, the better. The amount you get back will depend on how your investment grows and on the tax treatment of the investment selected. You could get back less than this.
If your parents are residents in the UK, trust planning can also be a useful tool if they wish to chip in for your children’s school fees and achieve Inheritance Tax (IHT) mitigation at the same time. If they make regular payments from their income without blowing all the inheritance on a fun filled retirement, then these “gifts” are not counted as part of their estate for IHT purposes.
Another option is to gift a lump sum for their grandchildren’s education. Provided they live for a further seven years, the gift is free of IHT.
Increasing demand for school places will only push the cost of school fees one way…
Demand for places at international schools is growing rapidly and has been fuelled by expat families who want to ensure their children settle into Singapore with the same language, types of sports, extracurricular activities and style of teaching.
As a result, competition between schools for the best teachers and leaders is high and this has a knock-on effect for school fees. Premium international schools charge high fees because they have to offer better salaries and benefits packages to recruit and retain the best teachers. They also have to cover those football fields and pools your kids enjoy.
As the cost of school fees looks set to rise it is sensible to ensure that your income and investments are working as hard as possible for you. Getting into the local system isn’t easy for many expat families, so budgeting for an international school is part of life in Singapore. If that ultimately benefits the children in your life, and gives them access to the best educational opportunities available, then you are also offering them the best possible start.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
For more information about school fees planning, please email firstname.lastname@example.org
Learn more about other financial issues facing expats.