How to save for child’s education fund while investing for your own retirement? Child’s education fund- a big headache for every parent especially you live in Malaysia!
Having two young children whom I hope to send overseas seems to be a difficult task for an ordinary working Malaysian. It is rather heartbreaking by looking at the past performance of MYR ( Malaysian Ringgit).
About 20 years ago, even a teacher in Malaysia could afford to send their kids to get a foreign education. This luxury is out of reach for most Malaysians now.
A difficult task for Malaysians
To be financially independent and retire young in Malaysia is like climbing Mount Everest without wearing any clothes! We need to save for our retirement, child’s education fund, future medical care bills, our first home, etc.
But we are being paid monthly in a weak currency but struggling to save enough money so that we can send our kids to get overseas education. These countries usually have strong currency such as Singapore, the USA, UK, Australia, and New Zealand.
When I was a small kid back in the 1980s, my mum asked us to use her leftover SGD 10 cent coins ( from her previous visit to Singapore) to pay for our school bus fee from my house to school. The only country she visited back then was Singapore.
Singapore was a popular destination among Malaysians to buy cheap imported watches then. SGD and MYR both had the same value in the early 1980s thus the bus conductor would receive SGD coin as well as MYR coin.
Looking at our currency performance since my childhood makes me wondering for the next 20 years, will MYR rise again?
How to save enough money if I want to my kids to get a foreign university degree?
Options available for Malaysians
I find the following ways might be useful if you want to save some money for your child’s education fund in future,
- Keep your money and don’t send them too early to international schools before SPM. No one would ask your kid during a job interview which primary school they attended. Save and invest all the money and only send them to private colleges or universities after SPM.
- Think about a twinning program, there are many private colleges here offering twinning programs- you spend a fraction of cost but getting the same degree eventually. Spend two years here and another one year overseas.
- Attend foreign university branch campuses in Malaysia- we have Monash, Curtin, Nottingham, Newcastle, Xiamen, etc here where you can get the same degree with just 30% of the fees. Why bother going overseas to get one?
- Maybe it is a good idea for them to get study loan to partially fund their study. Almost all American students get loans to go to college. Why can’t we do the same for our kids?
A big Headache!!
Yes, I know I know, people would argue that study and life experience would be totally different if my kid chooses to study abroad. I understand your concern. Like all other Malaysian parents, I am struggling every day to save as much as possible too for my children’s education fund and hoping to send them overseas!
PTPTN
I save regularly in National Higher Education Fund Corporation, abbreviated PTPTN for my sons. Since my wife and myself are working, each of us contribute MYR8000 per year. The very good reason of saving in PTPTN is of course you can get tax rebate of MYR8000 per year.The annual dividend rate of 4% is not too bad at all!
Saving from their own
I encourage my kids to save for their own education fund! They saved their money ( Hongbao money) they had collected during Chinese New Year and invested in some dividend stocks.
They got to know the power of compounding interest and I chipped in money so that they could afford to buy dividend stocks of their choice.
Usually they would save the dividend they got and behaved as frugal as their dad and kept the dividend and reinvested all the money.
I found this to be truly intriguing because they learn about saving, investing , frugality and growing their money at the same time!
Young children must understand money is a finite resource that can eventually dry up ( and not just a limitless pool that you tap by nagging parents to buy toys, Playstation etc).
Their 1000 shares of Maybank stock brings in a very tangible dividend of about MYR600 per year! They understand they have to save and invest to get passive income too.
ETFs Investment
I invest in currency which likely my children will be using in future. For me, I am likely to send my children to the USA or UK to study. Putting my money in ETFs which are denominated in USD or GBP would be a wise choice.
As you all might know I invest in ETFs listed in the London Stock Exchange which are denominated in USD but I do put some money in the same ETFs denominated in GBP.
For example, I put money in VWRD ( tracks All-World index which is in USD) but also invest in VWRP ( the same ETF as VWRD but denominated in GBP and it is an accumulating ETF).
Keep your investment in the currency you might need in future and sell them when your kid goes to university.
Buying a property / a piece of land
It might be a good idea to buy a property/ a piece of land to prepare for your kid’s education fund. I bought one property each in 2007 and 2009 when my sons were born. The benefit of buying property to prepare for child’s education is the property price is usually inflation-hedged and you can finance the purchase via leverage.
However, you might find it difficult to sell once you need the money. Another way is to refinance the fully-paid property when your kids are ready for university education if you fail to find any buyer.
You are still getting back MYR eventually when you sell. Looking at our currency, even though the property has appreciated 300% over a period of 20 years, due to currency depreciation against the currency you need, the capital appreciation might not be as great as you think.
Conclusion
I strongly agree that saving child’s education fund is not an easy task for Malaysians.
The only solution is you have to start early and at least have a horizon of 10 years before your kid goes to University.
Teach your kids how to save and invest when they are young and soon they would understand it is not easy to make money and start saving!
Dr Goh, Hope you are well.
These are my humble opinion.
Thanks for pointing out once upon of time Singapore and Malaysia. If you can recall even South Korea, and large cities in China were not better than Malaysia. Malaysian politicians still live in the dream. Corruption and racial politics is just a joke.
I have 5 siblings, all educated in the United States. My dad exchanged Riggit from RM2.5 to $1 US to RM3.8 to $1. By my time, being youngest, my older siblings had to pay for my education. Now, the exchange rate is RM4.14 to $1. In addition, you must factor in US education inflation, which is about 8%, even American cannot deal with it.
I agreed with the 2nd option twinning program but not the 3rd as Monash – Malaysia Branch. The reasons are the opportunity is being offer and open your eyesight.
When you able to reach the western worlds (assuming we are talking UK, US, Australia as main options), once you graduate, you really have the option to work with visa. When you are studying, you can try to intern in big company. For example, if you study in San Francisco, you can try to get a job in Apple, Cupertino, and you can rarely do that with Monash-Malaysia Branch. Then, that will lead to permanent resident and citizenship, the opportunity is far too great.
What I meant with open eyesight is education beyond books. Learning History, culture and spirit is far more important. Some American example, you see why American value Bill of Rights, value Freedom of Speech, and value right to bear arms. The debate in the classroom is far different than Malaysia’s classroom.
I have a 4 Months old baby, I have started saving college as well. Many Americans do take loan for school. It is also depending on the demographic. Asian American remains the most successful group, because they value education the most, many Asian parents will pay for children education. The other groups really depend of the family. It is certainly the media want you to believe, many take loans. To be honest, my social circle is middle and upper middle class, these parents are responsible parents having college saving.
Thanks.
Dr Goh, Hope you are well.
These are my humble opinion.
Thanks for pointing out once upon of time Singapore and Malaysia. If you can recall even South Korea, and large cities in China were not better than Malaysia. Malaysian politicians still live in the dream. Corruption and racial politics is just a joke.
I have 5 siblings, all educated in the United States. My dad exchanged Riggit from RM2.5 to $1 US to RM3.8 to $1. By my time, being youngest, my older siblings had to pay for my education. Now, the exchange rate is RM4.14 to $1. In addition, you must factor in US education inflation, which is about 8%, even American cannot deal with it.
I agreed with the 2nd option twinning program but not the 3rd as Monash – Malaysia Branch. The reasons are the opportunity is being offer and open your eyesight.
When you able to reach the western worlds (assuming we are talking UK, US, Australia as main options), once you graduate, you really have the option to work with visa. When you are studying, you can try to intern in big company. For example, if you study in San Francisco, you can try to get a job in Apple, Cupertino, and you can rarely do that with Monash-Malaysia Branch. Then, that will lead to permanent resident and citizenship, the opportunity is far too great.
What I meant with open eyesight is education beyond books. Learning History, culture and spirit is far more important. Some American example, you see why American value Bill of Rights, value Freedom of Speech, and value right to bear arms. The debate in the classroom is far different than Malaysia’s classroom.
I have a 4 Months old baby, I have started saving college as well. Many Americans do take loan for school. It is also depending on the demographic. Asian American remains the most successful group, because they value education the most, many Asian parents will pay for education. The other groups really depend of the family. It is certain the media want you to believe, many take loans. To be honest, my social circle is middle and upper middle class, these parents are responsible parents having college saving.
Thanks.
Dear Nasi Lemak,
Thanks for your comments. Our currency MYR sucks! Kids’ education fund just put too much burden on Malaysian parents’ shoulders. We save, save, and save just hoping we can send our kids overseas to get an international qualification. I just hope I can think of a better way of saving money for my kids but our currency performance makes the whole saving process even more complicated!! You just do not know how much is enough at the end of the day!
That why is so important that you keep writing this blog, please. I am referring some of my Malaysian friends to read your blog understanding how to actually invest in foreign currency.
Thanks, will try to do it but clinical works keep me pretty busy every day.
Dear Dr. Goh,
It is indeed true that our weak currency is one of the key reasons it is challenging to send kids overseas for education. I myself only managed to go because I had a scholarship.
However, I really do think that for babies born right now (in 2020s), we need to consider the impact of one globally disruptive force…automation. Just like the industrial revolution in the 1800s rendered physically strong men and women less useful in the economy (man’s strength was replaced by machines), i think right now we are at the cusp of machines substituting the human mind. This is not a problem that we will face today, but studies say that by 2050 machines will be able to do everything the human mind can do. Hence, for a child born today, I wonder if education even ensures them economic survival 30-40 years from now which is when we expect them to hit peak earnings from their education. On the other hand, most profits in the economy will be taken by technology/AI/automation companies. We can already see signs of this given that the top 5 market cap companies in the S&P 500 are Google/Facebook/Apple/Amazon/Microsoft etc. which account for 20% of the S&P 500 market cap. There are times when I think that the future generation needs capital (i.e. money) more than knowledge to ensure its survival. Perhaps we just need to give our kids equity (ie part ownership of the economy) in great companies, rather than the ability to earn income from a job.
Please dont get me wrong, I still think that education is a great asset for personal development. Its just that I find the RM 600k-RM 1 million price tag for foreign education not commensurate with ooprtunity cost. Eg. Spending RM 1 million on a childs education abroad (Eg. 4 year US private uni undergrad) forgoes the opportunity cost at 4% real interest rate of generating him/her earning RM 40k per year for the rest of his/her life, even after adjusting for inflation. Some fodder for discussion…
Dear RealFIRE,
I am always wondering is it a wiser choice just buy RM1 million worth of ETFs for my kid instead of sending them to overseas for education. But when I think back, certainly in terms of dollars and sense, buying ETFs will be a wiser investment in long run but a kid without a proper education and life lessons, will never learn how to live in this challenging world.
Your child might spend all the money in the investment if he/she never learn about frugality, hardship of life, beauty of love and meaning of giving. I want to give my children a bit of both. A proper education( overseas education if I can afford) and opportunity to see the world and a head start in investing by buying him some ETFs.
Hi Dr Goh,
Stumbled on your blog while trying to read up on education planning for my kids….it’s been a real joy reading your articles, hope you keep up the great work.
I just wanted to ask, you mentioned that your kids invest in dividend stocks including Maybank….do they have their own stockbroking and CDS account? Custodian account? Or do you invest under your own account but allocate it to them?
Thanks!
Dear Cs,
Thank you for your comment, for Malaysian stocks, I invest for my children under my name but I know these stocks are for them( Anyway they only have Maybank). As for ETFs, I invest in VWRD ( a distributing ETFs) but for my children, I invest in VWRA ( an accumulating fund), all are under my account but since they are different ETFs, I will never mix up the twos.