Building an education fund for children in Hong Kong

As the year winds down, parents can have a quick sigh of relief, knowing that there’s no need to fork out any pocket money for a little while. While lauded internationally, the Hong Kong education system can be relatively reasonable to plan for, especially considering the government subsidies that can be applied. 

However, additional fees can rack up the cost in Hong Kong – Food, transport, co-curricular activities (CCAs), tuition, or even if you choose to send your child to an international school. 

Sometimes it’s the secondary details that one should consider when educating their kids in Hong Kong.

Keep reading to find out more about planning and budgeting an education fund in Hong Kong and a few key tips from some Endowus parents on how they plan for their own kids’ education.

Why prepare an education fund?

Many parents spend monthly on their children’s extracurricular activities. Recently, not only have the costs of extracurricular resources risen, but so have the fees for private and international schools.

For example, in Hong Kong, the annual tuition fees for secondary education at international schools can reach more than HK$200,000.

Overseas education is costly. According to a recent HSBC survey, a three or four-year degree program in popular destinations like the US, UK, Australia, and Canada can cost between US$192,000 to US$256,000 per child, or around HK$1,500,000 to HK$2,000,000.

To provide perspective, international schooling costs can consume around 20% of parents' retirement savings in Hong Kong.

Due to the impending financial burden, 32% of Hong Kong parents anticipate their child taking on student loans, 36% hope for scholarships, and 26% would even consider selling assets to finance their child's education.

Impact of inflation on educational expenses and savings

Education costs are currently high and could go even higher in the future. Inflation has a compounding effect on future education costs, with tuition, books, and other fees continually rising.

Postponing savings for your child’s education may require allocating more funds later on. It is crucial to regularly review and adjust your education fund plan.

To prepare, the Endowus investment plan calculator can help estimate the required amount and adjust the savings strategy based on individual circumstances and inflation. 

Understanding education funds for children

Definition and purpose of an education fund

An education fund is a dedicated savings and investment plan set up by parents to cover future educational expenses for their children. It can help you manage the rising costs of education and support your children in receiving quality education. In modern family financial planning, an education fund plays a crucial role, and proper planning can significantly reduce the financial burden on parents.

How much to save and when to start?

The amount to save depends on factors including the child’s age, educational goals, the family’s financial situation, and more. It is generally recommended to start saving regularly from the child’s birth. Here’s a general step-by-step guide.

Steps to start setting up an education fund

When establishing an education fund for your child, consider the following factors to ensure you can meet educational expenses:

• Understand actual costs: Determine the educational goals and total expenses. This depends on the country, institution, and courses chosen for your child. Overseas university expenses typically range from HK$200,000 to HK$900,000 per year (including tuition fees and living expenses).
• Evaluate your investment horizon: Consider the time frame for needing the funds, based on your child's current educational stage and when you start planning. The earlier you start investing, the more you can benefit from compound interest, reducing long-term financial pressure.
• Assess risk tolerance: Evaluate your risk tolerance when setting up an education fund. If you can bear higher risks, you can choose financial products with higher return potential.

Investment options for education funds

Based on the above factors, you can invest the education fund in various types of assets:

• Fixed deposits: Low risk, with a fixed term and interest rate, suitable for idle money. For example, annual expenses like books, school bus fees, and uniforms can be set aside in fixed deposits to earn interest while keeping cash available.

• Money market funds and Treasury bonds: Low to medium risk, offering conservative investments suitable for funds beyond idle cash. Regular and variable dividends can cover some short- to medium-term educational expenses, such as quarterly tutoring and extracurricular fees.

• Global equities: Medium to high risk, offering relatively aggressive stock investment portfolios with varying risks and potential returns. Suitable for long-term financial needs, such as university expenses 20 years later.

• Investment-linked insurance plans: Combine protection and investment, but may have higher fees and lock-in periods.

The above options are for reference only. Investments should be tailored to your needs and risk tolerance. Seeking professional advice can help you choose suitable investment options based on your personal risk preferences and financial situation.

Involving children in financial decisions

Incorporating children in financial decisions can help them develop good values and financial literacy. Here are some interesting ways to involve children in financial planning and spark their interest:

• Explain the reasons and considerations behind family financial allocations and decisions.
• Include children's pocket money as part of the overall family finances, allowing them to share their financial decisions.
• During the Lunar New Year, involve children in collecting and distributing lai si (red packets), and discussing how to allocate it.
• Before travelling, invite teenage children to help with budgeting and teach younger children about different currencies.

These methods can help children understand the importance of financial planning and develop good financial habits from a young age.

Insights from Endowus parents

Let's take a look at how Endowus colleagues are building education funds for their children and cultivating their financial literacy.

“I have a daughter - she is only about 21 months old, but I have already started preparing financially for her future. 

We currently have two investment portfolios for my daughter’s university education, and we are investing in a 100% equity portfolio as the goal still has a long way to go.

I consider myself being a steward of the capital that I have set aside for her.”

“I have two kids, aged two and six. Although we haven’t set aside cash or a portfolio specifically for their education, we save and invest monthly for them. We are confident that we can finance their education based on our existing savings and investments, as we both have stable incomes.

Fortunately, in Singapore, government-run schools are affordable and of good quality. Our main concern is tertiary education, which is reasonably priced if they attend local universities.

To save for our children, my husband and I have a joint Endowus account. Each child has one Core and one Income goal, and we invest monthly into these goals. Given their young age and our earning potential, we are comfortable taking a long-term view with the investments. 

With our older child, we have started reading books about money management, like the Money Bunny series and the Four Money Bears. We also give her a weekly allowance to teach her about saving and spending.”

“I have a 5-year-old child, and ever since he was born, I set up a separate bank account to deposit all his ang bao money and automatically transfer a portion of my salary into it every month. I also created a goal for him in Endowus and used some money from that bank account to invest. 

My focus is more on his long-term future rather than immediate education spending. Luckily, I'm in a dual-income family, so both my husband and I contribute to this financial plan.

Teaching kids about managing money can be challenging, especially with the prevalence of e-commerce and digital wallets. My son often asks me to buy things with just a tap on my phone. 

To cultivate his money mindset, we give him access to personal money, allowing him to choose and purchase his toys himself. He also hands over the money himself, allowing him to practise maths. We also use these moments to discuss the concept of opportunity cost and whether buying something will truly bring him joy. I read books to him about managing money, including some great ones about the stock market and inflation.”

“My two children are 12 and 14. I give them an allowance where they can choose to spend or save. To teach them about the power of compounding, I offer them a much higher interest rate on their savings compared to the market rate. This helps them understand the concept of opportunity cost when it comes to spending.

While I am setting aside money for their future education, it can be challenging to save solely for something that has current costs as well. Therefore, I consider our entire family’s projected expenses, which include my children’s future education costs.

To help them grasp the value of products and services, I often discuss costs using examples they are familiar with. For instance, I may explain the price difference between economy and business class, by relating it to a certain multiple of their allowance or the number of their school bags.

The positive impact of education funds on family finances

Factoring in education expenses early in family finances and saving regularly for those goals can greatly reduce the financial pressure of future and increasing expenses. 

Most importantly, a well-planned education fund can help your children develop a sense of financial literacy and saving habits, contributing to their overall well-being and development.

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Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 

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