That's the estimated cost of raising a child from birth to age 18 in Bermuda. This includes healthcare, food, housing, transport and childcare/education in a government school. And this number does not include the cost of college.
Let’s look at the scenario of a child attending private school and going to university. For a child born in 2015, the following years are the milestones:
- 2020 – Child’s first year at “big school”
- 2032 – Child's high school graduation
The costs that arise at these milestones are estimated to be:
- $22,5441 - The average annual tuition at a Bermudian private school in 2020 – your child’s first year at “big school” [1 footnote]
- $274,1362 - The total average cost (tuition, room and board) for a 3-year college course in the U.K. starting in 2032 [2 footnote]
This means you need to begin saving $6713 per month now in order to cover the cost of your child's college education in the future [3 footnote]
1 – assumes a modest 3% inflation per annum; 2 - assumes 6.4% inflation of education costs; 3 – assumes 5% annual rate of return on your investment
The ‘Cost of Delay’
When we are cuddling our newborns, toddlers or primary school aged children, we find it hard to imagine them on a bike at 16, in college at 18, or getting a job after graduation. But time passes more quickly than we like to think, and starting to save now will mean you and your child(ren) will reap the benefits down the road.
Let’s examine the ‘cost of delay’.
Darren was born in 2015. His parents decided to set up an educational savings plan on his first birthday and committed to contributing $700 a month until he reached 18. Unfortunately when Darren was 10, his father lost his job and they couldn’t get back on track with contributions to his educational savings account. The crucial decision was made to leave the balance in the account until Darren reached 18.
Sean was born the same year. His parents, overjoyed with their son, focused solely on the day-to-day needs of Sean. On his 9th birthday, they realized the importance of saving for his college education and started depositing $900 a month into a savings account until he turned 18.
Both parents contributed for 10 years.
The benefit of compound returns
Given that Sean’s parents contributed $200 a month more – that’s $24,000 more than Darren’s parents – you might think that Sean’s saving plan would have accumulated a significantly larger amount. But the opposite is true.
Assuming the average annual return of both accounts is 5%, the account balance for Sean at 18 would be $142,633.30, but Darren’s account would be $163,904.49 – $21,271 more! This example illustrates the sizable difference in the accumulated wealth of each son and the benefit of compound returns.
How do we ensure that our child(ren) will have the future that we have planned for them? Let time work to your advantage, starting today! Make an appointment to sit down with a BF&M financial advisor to discuss what you can afford and create a plan now. Once you’ve established a road map, you should sleep better at night. As new parents will quickly discover – every little bit helps!