Readers may recall my August article on school and university fees planning, in which I emphasised the need for parents to start saving to finance these events, as soon as possible. I make no apologies for writing about this again as I see it as a very important part of any parent’s overall financial planning strategy. Rather than repeat myself, I asked one of my client’s who is a parent with two children, to write on the topic from his perspective. Here is his account.

As a parent with an elder child now in her sophomore (second) year at college in the USA, and the other starting college in two year’s time (all being well), I’m writing this short article to share my experience of the benefits of making provision for educational costs, early on.

In August 2008, my daughter was fortunate enough to get accepted by a very good design college in New York City, to begin her undergraduate studies. Her four years of full time studies will leave me with little change from US$300,000; a substantial sum even for professional working parents in senior positions. I’m very fortunate to be able to fund her undergraduate studies, and it’s all because I had looked ahead and started a savings plan for her in 1993. Having done some calculations on the projected costs, I took out a plan in August 1993, paying GB£700 each month, over a 15 year period. In September 2007, having contributed for more than 14 years, I decided to cash in the plan. It had grown very nicely to over GB£243,000 (US$450,000 at the exchange rate ruling then). I’d achieved a growth of nearly 120% on my investment, after the deduction of all fees and charges. From this, I made provision for my daughter’s college fees.

In May 1998 and September 1999, I signed up another two savings plans with monthly contributions of US$1,000 and GB£600, respectively. The US dollar plan will mature in March 2011, and the GB pound plan, on a shorter ten year tenure, matured in September 2009. Despite the market turmoil of the past year, the latter plan still gave me a return of nearly 100%, after deduction of all charges and fees. My original contributions of GBP 72,000 had grown to over GB£ 143,000, at maturity. I’m projecting the value of my US dollar plan’s value to be over US$300,000 on maturity. (Its current value is over US$265,000). This is a growth of nearly 100% of my contributions over the 13-year period, after deduction of all charges and fees. The funds from these two Plans are earmarked to finance my son’s undergraduate studies which will begin in two year’s time.

I’ve clearly benefited from having multiple savings plans with regular monthly contributions over an extended period of time (10 to 15 years in my case). The growth in their values will effectively fund the costs of tertiary education for both my children, and I still have my original investment – a nice sum! During this extended period I’ve witnessed two market booms and slumps, where I’ve seen the paper value of my plans grow as high as 200% and drop as low as 30% of gross contributions.

Regular contributions have allowed me to weight average out the adverse impacts of market fluctuations, on my investments. I believe this is a critical factor contributing to the growth in values which my plans have delivered. It’s important that one takes a long term approach and sees them through to maturity (or very close to maturity). For this reason alone, I’d strongly recommend starting with a monthly contribution amount that is comfortably within one’s means, and to start as early as possible. As your financial situation changes and your ability to make larger monthly contributions increases, you can up your contributions or take out a new plan, if necessary (as I’ve done over the years).

This particular client clearly sees the importance of financial planning and what can be achieved with a little discipline. With foresight he’s been able to afford his daughter the best education available because he planned for it in advance. Had he not done so, then his daughter’s choices of a higher education institution may have been limited. Planning ahead and saving on a regular basis makes sense, as finding the annual fees out of earned income is beyond most parents’ financial capabilities.