Investing for Your Child’s Education: The Ultimate 18-Year Guide

The moment you hold your newborn child in your arms, the world shifts. You feel an overwhelming love, followed swiftly by a terrifying realization of financial responsibility. You want them to have choices. In South Africa, choices are bought with quality education. However, investing for your child’s education is arguably the most complex financial challenge a parent will face.

Why is this specific goal so hard? Because we face “Education Inflation.” While the price of bread might rise by 5%, tuition fees at top private schools and universities like UCT or Wits rise by roughly 10% annually. This means the cost doubles every seven years. A standard bank savings account cannot win this race.

To secure their future, you must move beyond saving. You need a robust strategy for investing for your child’s education. In this guide, I will show you how to use the JSE and global markets to build a war chest that guarantees your child’s future, regardless of what the economy does.

For a deeper understanding of the asset classes mentioned here, please read our pillar article: The Ultimate Guide to Investing in South Africa.

The Math Behind Investing for Your Child’s Education

Before we choose products, we must understand the enemy: Inflation. Most parents underestimate the final bill. If a university degree costs R60,000 per year today, in 18 years—when your newborn matriculates—that same degree will cost roughly R330,000 per year due to education inflation.

If you are investing for your child’s education using a low-interest bank account earning 5%, you are actually losing money in real terms. You are running backward. To beat a 10% inflation rate, you need an investment return of at least 12% to 14%.

There is only one asset class in South Africa that has historically delivered those returns over 18-year periods: Equities (Shares). This is why investing for your child’s education requires you to be a shareholder in the economy, not just a depositor in a bank.

The Trap: Why Traditional Policies Fail

For years, brokers sold “Education Policies” as the default method for investing for your child’s education. I strongly advise against these legacy products for three reasons:

1. High Costs: They are loaded with upfront commissions and administration fees that eat into your growth.
2. Lack of Liquidity: If you lose your job and miss a payment, the penalties are severe.
3. Mediocre Performance: Many are too conservative, holding too much cash and bonds.

True success in investing for your child’s education comes from low-cost, flexible, and high-growth instruments like Exchange Traded Funds (ETFs) and Unit Trusts. You need total control and zero penalties.

A Strategy for Investing for Your Child’s Education by Age

Your strategy must evolve as your child grows. You cannot take the same risks with a toddler’s fund as you do with a matriculant’s fund. Here is the 3-phase approach.

Phase 1: The Aggressive Growth Phase (Age 0 to 12)

When investing for your child’s education during these early years, time is your greatest asset. Volatility is your friend. If the market crashes when they are 5, your monthly debit order simply buys more shares at a discount.

• Allocation: 100% Equities.
• Focus: Global exposure. Education costs (ipads, software, overseas trips) are often linked to the Dollar/Rand exchange rate.
• Selection: Buy the MSCI World ETF or S&P 500. You want the growth of Apple, Microsoft, and Amazon.
• Goal: Maximum capital appreciation.

Phase 2: The Consolidation Phase (Age 13 to 16)

As high school begins, the horizon shortens. Investing for your child’s education now requires a shift toward protection. You cannot afford a 40% market crash just before university.

• Allocation: 60% Equities / 40% Bonds and Income.
• Focus: Start directing new contributions into lower-risk SA Bonds or Income Funds.
• Goal: Lock in the gains made in Phase 1 while still beating inflation.

Phase 3: The Drawdown Phase (Age 17+)

University is imminent. The goal of investing for your child’s education shifts from “Growth” to “Liquidity.”

• Allocation: 100% Cash/Money Market for the upcoming year’s fees.
• Action: Move the money for “Year 1” of university into a Money Market account. Leave the money for “Year 4” in the market to grow a little longer.

Tax Structures when Investing for Your Child’s Education

One of the most common questions I get is: “Whose name should the account be in?” This decision impacts how much tax you pay.

Option A: In the Parent’s Name

• Pros: You retain full legal control. The child cannot access the money at 18.
• Cons: You pay the tax. All dividends and capital gains are added to your personal tax bill. If you are a high earner, this reduces the efficiency of investing for your child’s education.

Option B: In the Child’s Name

• Pros: Massive tax efficiency. Minors have their own tax number. They get their own R40,000 annual Capital Gains Tax exclusion. You can realize significant profits tax-free.
• Cons: At age 18, the money is legally theirs. They could choose to buy a fast car instead of a degree.
• Johan’s Verdict: I prefer Option B for the tax benefits, provided you educate your child about financial responsibility.

The TFSA Mistake in Investing for Your Child’s Education

I see many parents using a Tax-Free Savings Account (TFSA) as their primary vehicle for investing for your child’s education. Please stop doing this.

A TFSA has a lifetime contribution limit of R500,000. If you use this allowance to pay for school fees, you “burn” their tax-free capability forever. Once the money is withdrawn, the allowance is gone. The smartest approach to investing for your child’s education is to use a discretionary (taxable) account for school fees, and keep the TFSA strictly for their long-term wealth (like a house deposit at age 30 or retirement). Do not sacrifice their long-term tax freedom for medium-term bills.

Practical Steps to Start Investing for Your Child’s Education

You do not need a degree in finance to start. Technology has democratized access to the JSE.

Step 1: Choose a Low-Cost Platform Platforms like EasyEquities, Satrix, or Sygnia are excellent. They offer accounts specifically designed for minors (e.g., EasyEquities for Kids). This lowers the barrier to investing for your child’s education.

Step 2: FICA and Documents You will need your child’s birth certificate and your ID. Open the account in their name to utilize the tax exemptions mentioned earlier.

Step 3: Select the Right ETFs Don’t overcomplicate it. A simple 70/30 split works wonders:

• 70% Satrix MSCI World: For global growth and Rand hedging.
• 30% Satrix Top 40: For local dividends and growth. This combination provides a robust engine for investing for your child’s education.

Step 4: Automate the Debit Order Discipline beats motivation. Set up a recurring payment for the 1st of every month. Treat it like a bill that must be paid.

Case Study: The Cost of Delaying Investing for Your Child’s Education

Let’s look at the numbers. We assume a target of R1 Million by age 18 to fund a full degree and living expenses.

• The Early Starter (Age 0): Starts when the baby is born. They need to invest approx R1,600 per month.
• The Late Starter (Age 6): Starts when the child goes to Grade 1. They need to invest approx R3,700 per month.
• The Panic Starter (Age 13): Starts in High School. They need to invest approx R12,900 per month.

The math is brutal. The longer you wait to start investing for your child’s education, the heavier the burden becomes. Compound interest needs time to work its magic. Starting early allows your money to earn money.

Leveraging Family for Investing for Your Child’s Education

It takes a village to raise a child, and it takes a village to fund them. Change the culture of gifting in your family. Instead of R500 toys that break, ask grandparents to contribute to the investment fund. If a grandparent contributes R1,000 at birth, and it sits in an S&P 500 ETF for 18 years, that single gift could grow to R6,000 or R7,000. Crowdsourcing is a powerful tool when investing for your child’s education.

The Ultimate Gift of Freedom

There is no greater feeling for a parent than knowing you have provided a safety net. By investing for your child’s education today, you are not just paying for a degree. You are buying them freedom. You are ensuring they leave university without crippling student debt. You are giving them a head start in life that few people get.

The best time to plant a tree was 20 years ago. The second best time is today. Don’t let the fear of the markets stop you. Open that account, set that debit order, and let the South African and Global markets do the heavy lifting for you.

Your Next Step: Log into your banking app right now. Look at your budget. Find R500 that is being wasted, and open a dedicated account for your child. The journey of investing for your child’s education begins with a single debit order.