How Not Planning for Overseas Studies Can Reduce Singaporean Parents' Retirement Savings by 30%: HSBC Report

According to the HSBC study, a three-or four-year degree programme in popular overseas study destinations - the US, UK, Australia and Canada - can cost between US$192,000 (S$260,230) and US$256,000 per child.

Sending a child overseas for an education could wipe out as much as 30 per cent of parents’ retirement savings, so careful planning is needed, noted a new study by HSBC.

It found that a three- or four-year degree programme in popular overseas study destinations like Britain, the United States, Australia and Canada can cost between US$192,000 (S$260,000) and US$256,000.

It is a very big-ticket item, said UOB’s head of wealth management advisory and strategy, Mr Abel Lim.

Mr Lim added that parents will have to plan early so they do not have to compromise on their children’s education at the last minute.

He said getting an early start ensures parents do not end up having to sacrifice a lot of other financial goals or objectives, especially if they are already at an advanced age.

The results of the study by HSBC were released on June 12. The study found that 26 per cent of affluent parents in Singapore would consider selling assets to fund their children’s overseas education, while 32 per cent expected their children to take on student loans and 36 per cent hoped that their children would get scholarships.

Only 51 per cent had an education savings plan. These are endowment policies from the private insurers that help parents save for their children’s education fees. 

Ms Alice Fok, head of customer propositions, wealth and personal banking at HSBC Singapore, started planning for her son’s overseas education as soon as he was born.

Her son, Darius Lorens, is 21 and has just finished his first year at the University of Michigan in the US.

While Ms Fok started early, she said the general advice is to plan at least 10 years in advance. 

A typical plan for an international education starts with determining the total costs of sending a child overseas, said Ms Michelle Ngiam, executive senior financial consultant at Great Eastern Financial Advisers.

Common expenses include tuition fees, accommodation and daily living costs.

Ms Ngiam added that parents have to factor in inflation and the number of years they have before their children go overseas.

UOB’s Mr Lim said that inflation should not be disregarded because each dollar will be worth much less in the future.

Financial experts said the education plan should also have an emergency fund for unforeseen expenses. 

Ms Fok noted how Darius had to put a deposit upfront for accommodation. “We did not plan for the unexpected deposit,” she said.

A rainy-day fund would have come in useful as Darius could have dipped into it to pay the deposit.

Many also forget to factor in foreign exchange rate fluctuations, said Mr Lim.

If the Singapore dollar falls against the US dollar, parents will need a lot more Singdollars than they expect today.

A spokesperson for Trust Bank said foreign exchange charges can also add up when it comes to education fees. 

For example, most banks charge up to 3.25 per cent on foreign exchange transactions on credit or debit cards, so eliminating these fees can make a difference, the spokesperson said.

Once all the sums have been worked out, parents will have a gauge of how much they need. They can then think about how they can reach that target amount with their financial advisers, said Great Eastern Financial Advisers’ Ms Ngiam.

A rule of thumb is that parents can afford to take some risk in the earlier years because they have a longer time to ride out market downturns, said Mr Lim.

“Through investing in the market, compounding and accumulating that wealth, you will be able to meet those long-term goals, particularly for a child’s education,” he added.

It found that a three- or four-year degree programme in popular overseas study destinations like Britain, the United States, Australia and Canada can cost between US$192,000 (S$260,000) and US$256,000.

Mr Jeffrey Yap, head of investments and wealth solutions, South-east Asia at HSBC Global Private Banking and Wealth, said parents may want to set up a regular investment plan that lets them invest a fixed sum in the markets every month.

For example, you could save 5 per cent of the total tertiary education cost annually in a balanced investment fund comprising equity and bond investments and let the returns grow over the next 18 years.

Mr Lim noted that parents must constantly review their investments because once their children near the age of overseas education, they will need to shift their portfolio into lower risk and more liquid solutions so funds are easily available.

Otherwise, they face the situation where they need the money but if the market conditions are not right, they may not be able to sell an illiquid asset like a property or they may be forced to sell at a lower price.

Financial experts also recommend buying an overseas study insurance plan to protect against unforeseen expenses arising from personal accidents, medical care or travel cancellations and delays.

Mr Lim said: “Sending a child overseas for higher education is supposed to be a happy thing. You really do not want to be faced with a huge bill, especially when unfortunate things happen, and they do happen.”

Prepping for overseas education does not stop here. Ms Ngiam said parents can teach their children how to manage their finances and budget wisely when they are young.

Ms Fok opened a joint account with Darius before he turned 18.  

“I can monitor the joint account. Then we have a conversation: How do you use your money?,” she said, adding that she eventually gave him his own account to manage.  

“This is how much money you have at the beginning of the school semester. At the end of the school semester, this is how much you will have left. It is up to you how you spend the rest of the money.”

The results of the study by HSBC were released on June 12. The study found that 26 per cent of affluent parents in Singapore would consider selling assets to fund their children’s overseas education, while 32 per cent expected their children to take on student loans and 36 per cent hoped that their children would get scholarships.

Ms Fok added that she intends to teach her younger son, who is 12, about money and budgeting even earlier.  

Going overseas to study is one way for the children to grow, to learn to be resilient and at the same time to watch out for their own safety, she said, adding that she also had the privilege of studying in the US.

Article re-purpose from The Straits Times by Chor Khieng Yuit, Senior Business Correspondent