Client: Mr Chung
Occupation: Accountant
Age: 40 years old
Family: Live with wife and two children (3 and 1 year old respectively)
Family Annual Income: $800,000
Fund available for monthly savings: $8,000
Target: Education funds for two children to study universities in UK
Risk Tolerance Level: Risk-taker and can accept 20% fluctuation of his portfolio

Question: How should Mr Chung do to achieve his children's education plan?

Education Funding Need

The first information to know is the amount required for the two children to study in UK when they grow up.

According to British Council Hong Kong, the course fee for studying an Undergraduate degree in UK is about GBP 7,000 to 12,000 per year. Including living expenses of about GBP5,000 per year, the total cost for a child per year will be GBP 12,000 to 17,000. An amount of about GBP48,000 to 68,000 for each child is expected. We use an average cost of GBP58,000 for calculation, i.e. HKD638,000 per child (1 GBP = 11 HKD). Assume the education fund is required at the time his elder son reaches the age of 18, i.e. 15 years later. We also assume the cost of studies and living expenses increase in an annual rate of 3%. The total amount required after 15 years will be:

GBP58,000 x (1 + 3%)15 = GBP90,362 or HKD993,982 per child

Therefore, the total education fund for two children will be approximately HKD2 million in 15 years' time.

Recommendation

     Plan tenure: 15 years
     Monthly contribution: $5,800
     Expected annual rate of return: 8% p.a.
     Maturity value: $2,007,022

We suggest Mr Chung starting with a saving plan to accumulate the wealth for retirement. He can make use of an investment-linked insurance policy as the financial tools. It provides a platform for mutual funds saving to achieve long term goals. As the plan is for education funding, we would choose a plan with medium risk exposure though Mr Chung is a risk-taker. With an annual growth rate of 8% for 15 years, he can save around $5,800 each month in order to meet the target education funds. As Mr Chung can budget an amount of $8,000 for his savings plan, we suggest him to use $8,000 to start up the plan to cope with any possible changes such as rise in GBP exchange rate, increase in school fees other expected, fluctuation of investment return rate, etc.