Education investment plans in Kenya - Kabarak University Graduation www.businesstoday.co.ke
A past graduation at Kabarak University. The cost of university education may become significantly higher in the next five to 10 years. [ kabarak.ac.ke ]

Quality education has always been a priority for Kenyans, with the country’s literacy level averaging 81.5%, which is higher than the sub-Saharan average of 65.6%. Yet parents and guardians have had to deal with increasing costs.

The introduction of free compulsory primary school education in 2013 made things a little better for them but they still had to pay for books and reading material, exam fees, boarding fees and others. On top of it, free primary education caused an influx of students in public schools, which lowered quality. 

High cost of education

Most guardians opted for private schools to ensure their children get the best education. On top of this the number of students joining university from secondary school stagnated and declined in the recent past. This has put pressure on public universities’ cash flows forcing them to promote parallel programs in order to avoid revenue shortfalls.

This raises the fear that the cost of university education may become significantly higher in the next five to 10 years. To solve these issues, various private sector players have created products called education investment plans.

Education investment plans are medium to long-term mutual funds promoted by insurance companies or asset managers with a lock-in period of investment. The buyer of the plan is required to make periodic contributions, usually monthly.

These funds then gain interest and help the contributor attain an education-related financial goal. Individuals can take up such plans for their own education or that of their dependents.

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In Kenya, most market players have set the minimum tenor at five-years because most parents start saving for secondary and university education while their children are still in primary school. The minimum monthly investment ranges from Ksh1,500 to Ksh7,000. However, the payments are flexible and one may pay monthly, quarterly, semiannually or annually.

Insurance education plans do not earn as much interest as education investment plans offered by investment managers.

Aside from helping one to save for school, education investment plans come with the benefit of life cover. In case the parent dies, then a certain amount of money may be paid out to the family members left behind.

This is accompanied by extra benefits like funeral expenses cover and disability cover, among others. The disadvantage here is that these plans do not earn as much interest as education investment plans offered by investment managers.

Still, all education plans make the contributor eligible for tax-deductible contributions of up to Ksh5,000 per month but only after they have saved for 10 years or longer.

Things to consider

Before joining an education investment plan, you need to take several factors into consideration. One is your financial profile. This includes your age, investment goals and risk appetite. A young couple with a newborn can choose to invest in a longer education plan, while an older couple with more mature children do need to save for such a long time.

A high risk appetite may lead the investor to a plan that offers higher returns. Guardians who want to invest for a short period should consider other investment vehicles. If they would like a longer-term investment, then education investment plans are the best option.

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Other factors include the fund manager, the rate of inflation, the terms of the policy and the additional benefits on offer.

An education investment plan could help you avoid taking education loans in the future. To learn more about the benefits of saving in an education investment plan and alternative ways of saving for education, visit here.

As Malcolm X put it, “Education is our passport to the future, for tomorrow belongs to the people who prepare for it today.”

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About the Author

Justin Mwangi is an Investments Analyst at Cytonn Investments. Email: [email protected]cytonn.com

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