If unemployment can be singled out as the root cause of South Africa’s social ills, education comes in a close second.

Thousands of young children are prejudiced by a system that leaves them unable to read, write or do basic mathematics, as evidenced by results from the Department of Basic Education’s 2011 Annual National Assessment, distributed recently.

Our children must be educated to have any hope of achieving true financial independence in adulthood. And with basic education in a shambles, it is time for parents to step in.

It is not necessary for them to pick up chalk and textbook and put their brood through night school, but rather to take an active interest in all aspects of their children’s lives. Parents should help their children with their reading, writing and arithmetic homework as well as teaching them money smarts from an early age.

You can lead by example or by instilling financial discipline. Instead of dishing out cash on demand, parents should ‘pay’ their children a monthly (or weekly) allowance. To introduce some real-world harshness they should insist that part of this allowance is saved and that all expenditures are recorded before the next allowance is handed over.

Finance minister Pravin Gordhan says that adults should lead by example, by showing the youth the value of setting money aside each month. He was the keynote speaker at a recent South African Savings Institute (Sasi) event held as part of July’s National Savings month celebrations. This not-for-profit body focuses on child education as part of its ongoing effort to improve the country’s savings culture.

One of the most valuable things you can give a child is a fundamental understanding of money, including knowledge of budgeting and the risks of borrowing to fund consumption expenditure. The second gift you can offer is that of education. The cost of quality education is spiralling.

Jaco Gouws, Max Investments product manager at Old Mutual South Africa, says the total cost of 12 years of public schooling plus a three-year Bachelor of Commerce degree for a child starting Grade R today will be R784 000.

If you throw in private schooling you’re looking at more than double the amount — a gut-wrenching R1.952-million. If your toddler only starts school five years from today, your total education bill will be in the region of R1.206-million and R3.003-million respectively. And an individual starting a three-year university course in 2030 will run up approximately R621 000 in university tuition costs alone (around R100 000) in today’s money.

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One of the reasons we struggle to put away enough money to cover private school and university fees is the inflation differential between education costs and the basket of goods making up South Africa’s official inflation measure, CPI. Gouws says this gap has widened from around 2% in the early 2000s to 4% currently.

He says financial planners and product providers should factor in higher ‘education inflation’ when calculating the investment sums that need to be saved to pay for future university fees. With CPI currently at 5% (Statistics SA, June 2011), he suggests calculating the future cost of education based on 9% per annum price increases.

“The inflation-plus target underlines the need for savers to invest in a combination of assets classes or funds with the potential to outperform inflation,” says Gouws. Conservative bank deposits, money market accounts or fixed income unit trusts typically deliver returns of inflation plus 2%, which would not be enough to outstrip the rising cost education.

So, to meet your long-term education saving goals you will have to favour funds with significant exposure to equities and listed-property. There are a wide range of products available to assist with saving for education, and every product provider has its favourite.

With the myriad insurance and investment-based savings products on the market it makes sense to approach a financial adviser to guide you in product choice. The consensus is that you can ‘top’ the performance generated by most education-specific products by investing in an appropriate unit trust.

Gouws believes that the Old Mutual Max Investments product is an ideal vehicle for saving towards future education costs. Savers can begin with minimum premiums of R250, after which they can contribute by way of fixed monthly payments or on a flexible “pay-as-you-go” basis.

The product allows savers to split their capital across a number of funds without the hassle of individual fund minimums. “This spreading of funds (not all your eggs in one basket) between investment managers will facilitate generating returns in excess of inflation,” says Gouws.

If you prefer a fund that offers capital guarantees in addition to inflation-beating returns, you might consider the group’s Smoothed Performance Fund. The best non-equity education savings product we’ve come across was born out of collaboration between the Association of Savings and Investments South Africa (Asisa), Government and some of the country’s top asset managers.

Asisa determined that traditional education savings policies were out of reach for the majority of the population and set about finding an appropriate solution. Its efforts culminated in the Fundisa Fund, an innovative product that rewards savers for contributing to a child’s higher education.

The Fundisa Fund is a low-risk fixed income unit trust fund of funds administered by Stanlib and managed by ABSA, Nedgroup Investments and Stanlib. The product was launched in November 2007 to offer a secure and accessible savings platform that would motivate South Africans to save for education.

Contributions are invested conservatively in bonds, fixed deposits and other interest-earning securities. At first glance the Fundisa Fund looks like any other fixed-income unit trust offering. But dig a bit deeper and you’ll soon find reasons to get excited about it.

The product is designed to benefit lower-income earners more. A person investing R2 400 would receive the maximum bonus entitlement of R600 (25% of R2 400) and could potentially generate a 33% return in the first year. Of course this return is diluted as annual contributions and capital values increase.

The bonus payment is awarded subject to the Fundisa Fund being used for the higher education of a child beneficiary at a Government-recognised institution. If circumstances force the saver to close the account, the bonus portion will fall away.

The Fundisa Fund is a perfect solution for those with limited financial means. A saver can make contributions toward the higher education of a South African citizen (or permanent resident) with as little as R40.

Future contributions of at least R40 can be made as and when funds become available. Another fantastic innovation is that savers aren’t limited to saving for their own children. An employer could nominate his employee’s children, or an aunt or uncle could save for a niece or nephew.

Asisa says there were 12 463 Fundisa Fund investors at 30 June 2011. These investors have already saved R43.7-million for 15 473 young beneficiaries. South Africa has a great need for innovative products that tackle education and savings in one hit.

With the savings part of the equation nicely handled, the only remaining challenge is to ensure that our children exercise their money smarts when they make it to university. “It is tempting for students to spend on things that their parents would not let them have — living spendthrift lifestyles due to peer pressure,” says Elizabeth Lwanga-Nanziri, CEO of Sasi.