University studies, especially if they involve living away from home or attending private institutions, represent one of the most predictable yet also one of the largest expenses in family financial planning. Planning years ahead makes a huge difference to the saving effort required.
Why it's worth starting years in advance
Unlike other unexpected expenses, this goal has a considerable advantage: you know in advance, fairly precisely, when you'll need the money (roughly when your child turns 18). That known horizon of many years is precisely the ideal scenario for taking advantage of compound interest, starting with moderate contributions sustained over time instead of having to gather a large amount all at once in just a few years.
How to estimate how much you'll need
The cost varies enormously depending on whether it's a public or private university, whether it involves housing or travel expenses away from the family home, and the length of the chosen degree. It's worth making a rough estimate with a reasonable margin, knowing that actual costs may rise by the time it happens (due to education inflation, which has historically tended to outpace general inflation).
Which products fit depending on the time remaining
- Long horizon (more than 10 years): you can take on more risk, including a significant portion in diversified equities, given the time available to ride out short-term volatility.
- Medium horizon (5-10 years): it's worth gradually reducing the weight of more volatile assets as the date you'll need the money approaches.
- Short horizon (less than 3-4 years): prioritize low-risk, highly liquid products, since at this point there isn't enough time left to recover from a potential market downturn before you need the money.
The mistake of waiting too long to start
Starting to save for this goal when your child is already 14 or 15 leaves very little room for compound interest to work its effect, forcing much higher monthly contributions to reach the same goal you could have hit by starting years earlier.
Don't forget the scholarships and financial aid available
Beyond your own savings, it's worth researching in advance the scholarships and study grants available (national and regional), since they can considerably reduce the final amount you need to cover with your own savings, depending on the family's financial and academic situation at the time.
Simulate your specific savings goal
Our compound interest calculator lets you enter your time horizon until your child starts university and calculate the monthly contribution needed to reach your estimated goal.