Financial planning is difficult to make especially to us Filipinos because of the rampant bahala-na attitude in our society. Most of us have mastered the art of procrastination. We often say “sa susunood na lang ako mag-iipon” until we forgot that time is running out. Hanggang sa nagsilakihan na ang mga bata pero wala parin naiipon. In the end, our kid’s may suffer from our mishaps. Not unless of course if our salary is enough to cover the expenses when the time our kids are about to enter college or we are still alive by that time (no one knows if we gonna die young leaving our family financially distressed).
People tend to fear the things they do not know, like making an educational fund, to the point that many ended up missing the opportunity. This could actually help them lessen the financial burden of sending their kids to college. One of the reasons they might have is that no one in the family has ever tried to make a fund dedicated to their kids’ education. Or they might have heard these pre-need plans (educational plan) not being able to give payouts as promised.
Educational Fund vs. Educational Plan
An educational plan is a plan bought by parents in contemplation for the college education of their kids. The plan provides a guaranteed amount every year for a 4, 5, 7-year course depending on the provider. This is the plan most of us know as it is highly publicised of not being able to meet their promises to their clients. A payout is being paid much later than expected or some is unlucky not to be paid even a single cent.
On the other hand, an educational fund is made by yourself together with a financial advisor. This fund doesn’t have a fixed payout as the money is placed in investments (i.e. bonds, stocks, vul, uitf, etc.). The good thing about this is you have a total control on how much you want to have by the time your kids will enter college as the fund is variable. With professional help on the side, a little to no problem might be encountered.
My Father’s Nightmare: Educational Fund is Unavailable
I remember when I was in my senior year in high school, everyone is cramming to securing requirements in order to take entrance exams. Lucky enough I was able to pass the exams from my chosen schools. Among the schools I passed, I was thinking about going to the University of Sto. Tomas (UST) or Polytechnic University of the Philippines (PUP). From the two I picked UST because of the honor and prestige attached to its alumni. When I told my father about it, he immediately told me to consider other options as he is not financially prepared to send me in UST. We only have our fish ponds during that time to sustain our living expenses which is not enough to cover the high cost of tuition in UST.
As a good son, I chose to be practical thinking I can still study elsewhere to get my masters degree. Anyways, I love my father despite that. I would definitely love him even more if he prepared for our education. Kidding aside, PUP happens to be a good decision as I was able to finish my degree in electronics engineering on time. Plus where in the Philippines can you enroll for only Php 12 per unit? What’s more satisfying is the fact that my first paycheck is more than enough to cover the total tuition fees my father paid for my education.
Plan Your Kid’s Future with Educational Fund
But my story might be a little different than yours. What if your child would like to study a specific/unique course that is only offered by a single university. What would you do if you are not prepared to send him to that university? If you prepare as early as today this could not happen to your kids. Choosing between what they like against what’s practical. I know every parent would like to give the best things to their family. That’s why we have a phrase “hanggat kaya kakayanin”.
Cost of College Education is on the Rise
A 12.25% rise in tuition fees is experienced every year according to the CHED-published 2008 Annual Tuition Fees in Philippine Daily Inquirer. This is shocking or more alarming to know how much is needed to send your kids to the best university after 15 years from today. Most of us have a preferred school already where we want our kids to study. The table projects the future cost of education in 5 most popular choice of school.
The increase in tuition fee is a way of the institutions to cope up with inflation, the salary increase of staffs, improvement of their facilities etc. Basically, the quality of education they provide is the sole reason why you wanted to send your kids to any of these universities. This corresponds to the high cost of education every parent should prepare as early as your child is born.
VUL Plan: Income Protection with Investment
To ensure that your kids can still go to college with or without your physical presence. Though you are capable to send your kids to the best schools today. There is still no certainty that you will still be around by the time they will enter college. In other words, insurance prevents our dreams for our family to die together with us. According to Benjamin Franklin, the only certain thing in life is death and taxes. Morbid to think but death is inevitable and must be considered in planning for the future of your family. You don’t want your kids to stop studying, right?
Your investment/premium will generate income in terms of interest that will be enough to cover or at the very least lessen your worry about your kids’ education. The amount will be dependent on how much you will invest, the higher your investment the higher the return. Time is also a big factor to consider. Don’t expect that you can generate millions just investing few thousands in just a short amount of time.
If you don’t have enough money you should have at least enough time. I heard a lot of parents who are willing to give this a shot but they only have few thousands per month (it’s okay to start low) but the worst part is their kids will enter college in 5 years time. There’s no such thing not unless you have hundreds of thousands to put in a high yield but risky investment vehicles like equity/stocks then 5 years may be enough. Educational planning needs more time than that if budget is limited. It should start as early as your child is born.
Federico Suan, Jr. who is 25 has a newly born son that will study after 17 years from today (2017).
Annual Premium: Php 200,000 (5 years to pay)
Monthly Premium: Php 16,670
Total Investment: Php 1 Million
Projected Fund Value after 17 years: Php 3,768,544
After 17 years the projected fund value is enough to send his kid to UP for a 4-year course. Imagine that he invested Php 1 Million only but the fund was able to reach the desired amount that he needs to send his son to a reputable university. The premium might be a little pricey for others as Php 200,000 per year is already a big amount but as discussed the plan is a variable plan. Anyone can start small then gradually increase the investment when they have more money to invest. We are talking about action here. If you do not start now, most likely you will never start at all because you find it too late. In the first place, you encountered it early but believe that it was too early when in fact it is just the perfect time.
Life Coverage: Php 800,000
This is the amount of money my family will get just in case you die due to an accident, illness, or natural cause. This is the amount of money I can leave peacefully to my family without worrying what will happen to them. Because the fund is made for the education of my child it is recommended to be reinvested in a financial vehicle similar to a VUL policy. If Php 800,000 was placed in a fund that earns 10% p.a. it will generate Php 4 Million. It is as if you I am still alive financing my kid’s education.
Total Disability Benefit (TDB): Waiver
This is a rider (optional) that can be attached to an insurance policy. If I get disabled and can no longer work, this rider will waive my future payments. It is as if I am still paying the premiums. Though optional, (it just cost me less than a thousand pesos for it) I consider this a MUST have rider in any life insurance policy.
Accidental Death Benefit (ADB): ₱400,000
If I die due to an accident my family will get this amount together with the life coverage totaling ₱1.2 Million.
VUL policy can be designed to address the different need for retirement, education, health protection, etc. A VUL policy got you covered.
WANT A FREE PROPOSAL?
You too can protect yourself from the lingering uncertainties by getting a VUL policy. Some terms are technical in nature that an ordinary person cannot understand without the help of a Licensed Financial Advisor. A personal meeting is strongly recommended. No pressure nor obligation on your part will be imposed upon appointment. You may not like it and it is perfectly fine with me. You can reach me through 0917-775-8352 or e-mail me at firstname.lastname@example.org.
Federico is an electronics engineer, financial blogger, insurance agent, and a certified investment solicitor. A multi-awarded financial advisor with clients ranging from lawyers, doctors, engineers, accountants, business owners, company directors, and OFWs to minimum wage earners had sought advice from him in achieving lifetime financial freedom.