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.
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.
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:
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.
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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. 🙂
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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.
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