Many parents worry about how to pay for college education. Tuition fees already range from ₱30,000 to ₱200,000 a year, depending on the school and course. Given the average annual increase of 10%, you could spend a lot more by the time your child reaches college-age. 

You can build your tuition fund with a combination of saving and investing. 

Let’s say that your child is currently in kindergarten. Your savings cover immediate or miscellaneous school expenses or short-term goals like next year’s tuition. Your investments grow your money for bigger long-term goals like high school and college education. 

Are you new to investing and worried about risks? 

Here’s a simple guide on how to invest for education and how it can be part of a well-rounded financial strategy that secures your child’s future.

What is investing? 

A single mango seed can eventually become a tree that yields hundreds of mangoes every year. 

Investment works the same way. You “plant” your money into different instruments (stocks, bonds, mutual funds, etc.) that eventually provide returns. 

However, different types of plants grow in different ways. Some may grow slowly and steadily. Others grow faster but are more sensitive to environmental or market changes. 

Your garden of investments – or your investment portfolio – should have different types of plants. 

Some provide quick harvests or returns but have higher risk and need closer attention. Others take a longer time to grow but can be a stable source of future income. 

Why should I invest for education?

Investments can provide higher returns compared to the interest earned in savings accounts. These can also outpace the rate of inflation, so you maintain or potentially increase the real value of your money. 

You also benefit from the power of compounding. Your investments earn returns which can generate additional returns. This effect becomes more pronounced over a more extended period. 

If you start investing early, you can build a significant education fund by the time your child is ready for college.

How can investing benefit my child’s education? 

• You can build a bigger tuition fund. Your child can pick the school and course they really want. 
• You can plan for other school expenses. Securing your college funds frees your household budget for miscellaneous expenses like allowances, books, supplies or enrichment programs.
• You can prepare for unforeseen circumstances. Even if you face sudden challenges like illness or job loss, your child can continue their education. Provide your family with a plan that protects your family from unexpected expenses.
• You teach them life lessons. Your child sees how you value education and manage your money to reach important goals. This cultivates their love for learning and introduces them to financial literacy – two attitudes they need to succeed and prosper.
• Your money works for you. You work to earn money, but investment lets you harness the power of time so you “earn as you sleep.” You can focus on daily parenting responsibilities, from prepping baon to supervising your child’s homework, while your funds increase in value. 

What are the different investment tools?

There are many ways you can invest for education. Each tool has its own degrees of risk and rate of return. If you are new to investing, consider consulting a financial advisor who can manage your portfolio and provide accurate, professional advice.

Stocks

Stocks signify partial ownership of a company, allowing you to share in the company’s profits and losses. You can benefit from capital appreciation (an increase in stock value) or receive dividends if the company distributes profits.

However, stock values can fluctuate based on market conditions and the company's performance. If you manage your own stocks, monitor market trends and research the companies that you are interested in. Look at their financial health, growth potential and the industry they operate in. You can also spread your investments across different stocks and industries to reduce risk.

Mutual funds

You entrust your money to a financial institution or fund manager, who pools money from multiple investors to purchase a diversified portfolio of stocks, bonds and other securities. 

Mutual funds can be beneficial for first-time investors. Your fund manager monitors market conditions and adjusts the portfolio accordingly. You can also join a mutual fund with relatively low initial investments. 

Unit Investment Trust Funds (UITFs)

UITFs and mutual funds work the same way. The only difference is that these are managed by banks rather than by insurance and brokerage companies. All banks that offer UITFs are regulated by the Bangko Sentral ng Pilipinas (BSP).

Insurance as investment

Some insurance policies have an investment component. Part of your premiums are invested to increase your plan’s cash value. You can later withdraw part of the cash value for education costs. 

You can use BPI AIA’s Dollar Protect Plus to invest for education. With an annual premium as low as $600, you can invest in U.S. dollar-denominated funds and build your financial portfolio in the most accepted currency worldwide.

Dollar Protect Plus also has life insurance protection. If anything happens to you, your family receives financial benefits that they can use for education and other living expenses. Optional rides can cover unfortunate incidents such as critical illness, accidents, and disability.

Real estate

Real estate property can provide a source of rental income or can be sold later for a higher price. However, it requires a lot of capital investment, and you must factor in loan payments into your household budget. 

How much do I need to invest for education?

That depends on how much you expect to spend on college tuition. Follow these steps to make a general target for your tuition fund. 

1. List down your target universities and colleges. Research on their current tuition fees for different courses.
2. Based on your child’s age or grade level, determine the number of years until they begin college.
3. Use this formula to calculate the future cost of education. Note that tuition fees generally increase by 10% every year. 
   • Formula: Future Cost = Current Cost × (1+Inflation Rate)^{Number of Years}
   • Example: Your desired university currently charges ₱120,000 per year. Your child is 10 years old, so you have eight years until they start college.
   • Future Cost = ₱120,000 × (1+0.10)8 = ₱231,424 for the first year
     To calculate the succeeding years, multiply by 1.1 which is the simplified version of (1+0.10)¹.
   • First year: ₱231,424
     Second year: ₱231,424 x 1.1 = ₱254,566.40
     Third year: ₱254,566.40 x 1.1 = ₱279,022.04
     Fourth year: ₱279,022.04 x 1.1 = ₱306,924.24
   • Add the four years to get the total cost of college tuition: ₱1,072,936.68
4. Now that you have a tuition estimate, talk to your financial advisor about the best investment approach based on your budget and your risk tolerance.

I am on a tight budget. How can I afford to invest?

• Start small. Begin with modest amounts that won't strain your budget. Many investment platforms allow you to start with minimal funds.
• Start early. You can begin saving and investing as soon as your child is born! This gives your money more time to grow.
• Cut unnecessary expenses. Review your budget and identify areas where you can cut back. Redirect the saved funds toward your education plans.
• Consider a side hustle. Explore part-time gigs, freelancing or small home-based business. Allocate a portion of your extra income toward your investment fund
• Reinvest dividends. If your investments generate dividends, consider reinvesting them to accelerate the growth of your portfolio.

I am afraid of investing. How can I manage my risks?

This is a common concern, and you can take steps to manage your risks. 

• Educate yourself. There are many books, videos, podcasts and online classes that explain investment in a simple and practical way. Learn about the different investment options, including their risks and potential returns. This empowers you to make informed decisions, manage your expectations and reduce uncertainty.
• Diversify your portfolio. Spread your investment across different kinds of assets, industries and markets. This minimizes the impact of a poorly performing asset on your overall investment portfolio.  
• Be conservative. Begin with modest investment amounts, so you can gain experience without exposing yourself to significant financial risk. 
• Maintain an emergency fund. A financial safety net can give peace of mind and prevent the need to sell investment during market downturns. 
• Seek information and professional advice. Beware of anyone who promises huge returns at no risk and evades questions on how the investment works. A professional financial advisor will always be clear and upfront. Make sure that they are licensed and associated with a reputable firm with proven experience in fund management. Investment always involves some level of risk, so work with someone who understands the market factors and your personal tolerance. 
• Adapt a long-term perspective. Markets can experience short-term volatility. However, historical trends show that over the long term, investments tend to grow. Professional fund managers also monitor trends and balance a portfolio to manage risk and potential for growth.

How can I start investing in education?

BPI AIA can help you take the first steps in investing for your child’s tuition needs. Tap the experience of our professional fund managers and the personalized service of our Bancassurance representatives. Together, we can find the right ways to invest for education based on your goals, budget and risk tolerance. 

Visit the nearest BPI branch to speak to a Bancassurance Sales Executive.