Money Wise

Why We Chose Mutual Funds Over Educational Plans


Doing away with traditional Educational Plans

Sending our children to good schools can really eat up a big chunk of our family budget. So, how do we prepare for our children’s future? We save up for their college fund in mutual funds over educational plans. Here are the reasons why.

The Need for a College Fund

As parents to young children, my husband and I acknowledge the need for the education of our daughters. We want them to grow up to become strong, able, and independent women. Education will arm them with the knowledge for their future.

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Wondering how to prepare for your child’s future college fund? This is the path we took.

While we are homeschooling them for elementary and possibly until high school, we cannot neglect the fact that they might or will proceed for further schooling. We say “might”, because we are open for unstructured education. However, they can also proceed to university if they wish to do so.

In order to be able to send our girls to a good school, we need to start early in saving up for their future. While we are a two-income household, this is still quite a challenge for us because I am a freelancer. My income does not come in regularly.

As a Bacolod mommy blogger, I get more ex-deals and gift certificates than cash. While I can use the items at home or for myself, they come out as savings. Instead of buying these things that we need, we get them with ex-deals. But obviously, I cannot use gift certificates and items to pay for college tuition fees.

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We love to enjoy our staycations, like this one at L’Fisher Hotel Bacolod. But we try to keep the expenses down because we are also saving up for our future.

Despite that, we started saving for their college fund when I was still pregnant with our eldest Dindin. That was 10 years ago. So we travel and enjoy our life at present, but we also find ways to prepare for the kids’ future.

Why We Snubbed Educational Plans

My younger brother had an educational plan. But I won’t mention the name of the company here.

Our parents paid for his plan diligently and we were excited to use it when he reached college. He took up computer engineering, which would take five years to finish. Since the educational plan was only for four years, our parents decided to apply it on his sophomore year because by his fifth year, tuition would be more expensive.

When the Company Went Bankrupt

Everything went well until my brother was in his fourth year at University of St. La Salle Bacolod (USLS). When the school year was almost over, the company announced bankruptcy. The inflation at that time hit them badly and they could no longer afford to continue payments.

So on his last year in college, my parents had to pay for my brother’s tuition fees from their own pockets. Since I was already working at that time, I also contributed in order to get my brother through his graduating year.

Thankfully, my brother finished his course and now has a stable job in Australia. However, we were never able to claim the payment for the remaining year.

Disadvantages of Educational Plans

The educational plans back then were handled by pre-need companies and are not regulated by the insurance commission. That is why there is no check and balance in relation to their assets and whatever benefits they promised to their clients.

Meanwhile, in the current years, the setup of educational funds was changed. As we were inquiring about what’s best for our eldest, we were told back then that educational funds no longer protect you from the rise of inflation. In short, funds were not guaranteed anymore by the time our child reaches college. So we thought that it wouldn’t be wise to invest in educational funds anymore.

Lastly, if you skip payments to the educational plans, the policy will be forfeited in favor of the company. You lose all the money that you have already paid. That is not a wise investment.

Advantage of Educational Plans

However, the good thing about educational plans is that, it has an insurance policy. If anything happens to the payor, the payments may be stopped but the insured (your child) gets all the benefits when the time comes. He or she can still study for college because tuition fees are covered.

Why We are for Mutual Funds

So why did we choose investing in mutual funds for our children’s future over educational plans? Here are the reasons why:

Inflation covered

Our investments in mutual funds are all for the long term. These are for my and hubby’s retirement and also our children’s higher education.

We think that these are better than savings accounts because the earnings from these investment vehicles can cope with inflation. With savings accounts, you actually lose money over time because of inflation.

Affordable minimum investments

If we invest in the stock market, we need liquidity in order to be able to manage the buy and sell of shares. We cannot afford that. Depending on the company, there are mutual funds that you can join for as low as P1,000. Minimum top up may be P500. So affordable and easy to manage!

No need for hands-on management

With mutual funds, you leave your money to a reputable company and let the experienced financial managers handle it. You don’t need to lift a finger, except when checking the values of your investments. I prefer this because this is not my area of expertise.

No required payments

With educational plans, you are required to pay a certain amount regularly based on the face amount of your policy. It can be monthly, quarterly, semi-annually, or annually, depending on your agreement. But, if you skip payments, you lose everything–the future benefits and the money that you have paid over time.

On the other hand, you can top up anytime with mutual funds. You are not required to regularly make payments in order to keep the account active. We have an existing equity fund with Sun Life that we have not topped up for the last three years because money had been tight. It’s still there and it’s still earning. We know that because we regularly get statements from the company. 🙂

If you are a stay at home mom who wants to increase your household income, become a work at home mom. Here are some online jobs for moms you can do at home.

Not covered by estate taxes

When the time comes, the children can easily withdraw the money from our mutual funds because they are co-investors. They won’t need to shoulder estate taxes, like in claiming other forms of inheritance. They just need to submit their valid IDs.

Children can withdraw the money easily

Our daughters are named co-investors in different mutual funds. Shawna and Shane have different accounts. When they reach legal age, they can withdraw the money without having to submit so many documents to prove their identity. After all, this is not an insurance claim. They would just be withdrawing the investments that their parents did in their names.

Then, they can start a business or proceed to take the college course that they want. In our home, we are pretty liberal with their choices.

Life Insurance: Our Fall Back

In order to cover for whatever happens to us while the kids are still young, hubby and I have invested in life insurance policies. That way, the kids may not have educational plans that will be activated when the payors pass away, but the life insurance benefits will be able to help them proceed.

However, with this setup, we do need to teach kids how to budget money. Otherwise, they can easily splurge and use everything when they suddenly get hold of a big amount of money.

Other Investment Options

You might want to consider investing in the stock market. That is where companies managing mutual funds also invest your money. I tried it, too. However, I realized that I did not have the guts and patience for handling day to day transactions. Plus, we do not have the liquidity to maneuver the daily ins and outs.

Meanwhile, mutual fund companies pool the money of all the small investors so they have better leverage in investing, pulling out, holding, and such. So I am sticking to investing in mutual funds for our long-term investments.

Variable Life Insurance Plans

You may also be interested in variable life insurance plans. That’s what we have. These are insurance policies that are invested in mutual funds, except that it has a life insurance policy. It’s very nice because you get benefits from both sides of the fence. It’s little bit pricier in premiums because of its advantages but it’s totally worth it.

Our Investment Behavior

What we are doing for our children’s financial future may not be applicable for your family. You might find that educational plans for more beneficial. But I would just like to encourage you to look into mutual funds as well. If you have extra money, diversify your investments. You can have educational plans as well as mutual fund investments. As the saying goes: Don’t put your eggs in just one basket. It also applies to your investments.

The Stock Market

If you have the knowledge and the guts for it, stocks could be a good investment option. There are many stock options for stable companies that you can invest in, such as gsk shares. Or, you may want to bet on start-up companies because if they grow big, you will grow along with them.

It’s just not for me, though. Too scary and stressful. haha

How Moms Can Earn from Home

Do you also want to prepare for your children’s future but your daily expenses leave you with nothing much? How about a sideline? Of if you are a stay at home mom, would you like to earn from home? You can be a Sun Life financial advisor.

Read more here: One Way a Mom Can Earn from Home


39 thoughts on “Why We Chose Mutual Funds Over Educational Plans

  1. My dad used to say Mutual funds is way better than education plans and later on I realized he was right. And I over here agree with all your points as mutual funds had helped me and dad a lot.

  2. Thank you thank you thank you for this post. I have been trying to figure out how to start saving for my daughter for college. She is only two, but I know college costs are skyrocketing and we can never really start too early. This is hugely helpful in my quest to start this saving venture.

  3. I need to start thinking about this, my boys are 5 and 6 months respectively so. I guess it’s high time I start saving up money for their future. College ain’t easy. Glad that we have an option other than educational plans with mutual funds.

  4. Thank you for this great content! You have definitely given some great food for thought regarding investments. It is nice to see that there are some serious options out there like mutual funds for our children’s future.

  5. This post is really informative! I wrestled with the idea of starting a college fund for my son 2 years ago. I opted not to do it for a lot of the same reasons. This was a very insightful read on mutual funds!

  6. I hadn’t heard of Mutual Friends before, but I love how you laid this out with very useful information. I am about to homeschool a child, my other is homeschooled but technically is an online charter school student and takes those courses at home. I loved reading this, something to think about!

  7. Your blog is enriching. It just enhances my knowledge of mutual funds. Indeed, educational plans are quite tricky and can even lose you money.

  8. In the sense of having a educational plan is a good that you preparing in the good future .But probably some of the issue there is the funds or cost in the next future .

  9. Gosh – I hadn’t realised how complex this sort of saving is. Here in the UK, education is free up to the age of 18, and then you get a student loan for university, which you start paying back once you earn over a certain amount. But it sounds like you have a great handle on your financial plans, your way sounds much safer than the educational plans!

  10. We also invested in mutual funds for our kids and it allowed us more options about using it for expense for them. Everyone needs to start early with saving for college.

  11. I can see why you would be very wary of educational plans. If something should go wrong and losing all that money, would be difficult. I think there is a bit of a risk in whatever investment though. But I’m sorry for what happened with your brother. That would be awful.

  12. I’ve never heard of mutual plans before and it was something totally new to me! I think it would be a great idea to try it out, especially when I’ve got my own kids. 🙂

  13. My husband and I wanted to start saving when we found out that we were pregnant, three-years ago. But we were so strapped for cash that we didn’t have any money left after bills. Now that we are more financially stable, I am starting to look into options for saving for the future. Because like you, we want her to use the money that is put into an account for whatever she may need – if it’s for college, great, if not we want her to be set for whatever she decides to do in life.

    1. That’s an awesome idea, Rikki. Keep it up and may things be in your favor as you build up your future plans for your daughter.

  14. Your points are right on. We invested in mutual funds, too. Education plans are not highly recommended even though it’s quite popular.

  15. That is such a great idea! I wish we had such options for investment in my country. Alas it is too unstable and underdeveloped to have any normal plans for whatever.

  16. I think that it’s always a good idea to look at alternatives. Mutual funds is definitely a great idea too. We homeschool our 4 kids as well, and this is definitely something I’ll look into.

  17. Education is so expensive in the US you sure need to save money very early on! I had never heard of educational funds. After reading your post, i’d defo go for mutual funds as they look much safer and more worth it in the long run!

  18. I love the thought behind this great post! This is something to ponder. If you ask me I would choose mutual funds based on the reasons that were mentioned by you. Thank you for sharing.

  19. I got a life insurance just this year and planning to invest on others as well. Thank you for this informative post on mutual funds, it’s really helpful.

  20. Saving for your child’s education is one of the most important things that you can do. This is some really great advice for doing that.

  21. Reading this post was really interesting because it opens a door over issues quite unknown here in Italy: here school system is public from elementary school up to university and, also being expensive for what concerns buying books or taxes when it comes to university (the highest public university tax rate in Italy is 500 euro – abt 430 dollars – a year), you don’t have to think about special funds to invest on education. And that’s why sending kids to school, public or private one – because there are few quite expensive private schools too – is legally compulsory. Home schooling is not allowed here, except for kids with very special needs.

  22. This seems like the most structured future plan for children’s education. I wish you and your children good luck so that you can together live up to all your dreams.

  23. Its always smart to pre-plan for college as early as possible when you have a family! This looks like a good option for families and it should definitely help for the future.

  24. Me and my sister is a victim of CAP before. My mom got an educational plan for both of us BUT by the time na ako na sana ang gumamit, na bankrupt sila. We were not able to use the funds PLUS we were not refunded.

    I agree meron naman talagang advantages ang educational plan but everything changes.

    Now, I am saving for Dirk’s college. Na trauma na ako sa nangyari samin nang sister ko.

    1. Hayyyy so many people have been victimized by CAP. We were so confident that my brother’s college tuition was already solved because we saved, planned, and invested for his future.

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