If you have come to Portugal with children and associate your family's future with this country, you probably thought about how much higher education will cost and how to pay for it. In this article, we will analyze ways to save money for university studies, depending on the time that the family has. These methods are relevant to all residents of Portugal.
For the Portuguese, the admission of a child to a university is a joyful event, but everyone understands that for at least 3 years, the family will have to spend significant amounts on undergraduate education and related expenses. And if the child moves along the path of education (master's degree, postgraduate studies), then the costs will increase. Therefore, so that studying doesn't cause severe damage to family finances, it makes sense to start raising money for it in advance. How much in advance and how much to collect? Read on and find out!
How much money does a student spend in Portugal?
The cost of undergraduate studies at public universities is fixed at 697 euros per year for Portuguese citizens at the time of writing this article. Including additional payments, the minimum cost of 3 years of undergraduate studies is 2.166 euros. Private universities have much higher rates. You can find some examples here. In addition, each university sets its rates for master's and postgraduate studies, usually higher than 697 euros per year.
According to a Eurostudent analysis conducted in 2020-2021, the average student in Portugal who lives apart from his parents spends 596 euros per month. These costs include food, accommodation, travel, and other everyday expenses (according to the same analysis, students living with their parents spend an average of 100 euros more. However, it needs to be clarified what could be the reason, so we will focus on 596 euros in expenses per month).
So, let's consider a situation when the child is a citizen of Portugal at the time of admission and is going to study at a public university. Then parents will need to spend:
- 20.264 euros to live on for 34 months (assuming that when the child graduates from the university in the summer, the parents will stop funding him) and
- 2.166 euros for education.
In total, it is about 23.000 euros. If the child studies at a private university, the amount of 2.166 euros must be replaced by the current one for that university.
The amount has been determined. Next, we will consider different ways of accumulation, depending on how much time is left until the expected university admission. This period is crucial for understanding how risky financial instruments can be used.
1-3 years left before entering a Portuguese university
In this case, it makes sense to use only risk-free instruments and avoid any additional income from the money you set aside. Your goal is to save money and keep it from depreciating as much as possible due to inflation.
Suitable instruments for this period are bank deposits, savings certificates, and an instrument called Certificado de tesouro. We discussed the first two instruments in detail in this article.
Perhaps, when you decide to start saving, there will be bank deposits with exciting conditions on the market, but in November 2022, I would focus on something other than them.
Savings certificates, Certificados de aforro, now offer a much more exciting interest rate (2.842% per annum for those who subscribe to them in December 2022). A couple of words on how it works: you open a particular savings account, put money there (at least 100 euros), and you can replenish it as much and as often as you need. The maximum amount allowed on one person's account is 250,000 euros. After the first 3 months, you can freely withdraw money from the account. Interest on the balance will be calculated every 3 months and added to the principal amount on the account. That is, it will be capitalized. The validity of the certificate is 10 years.
You can register this product in your name or the name of a child or grandchild. According to the law, a child will have access to the account from the age of 18 (or from the age of 16, if the child can prove his complete independence from his parents).
Savings certificates are good because they depend on the Euribor rate, which has been steadily growing recently. But if the Euribor rate starts to decline, then the profitability of this instrument will be shady. Therefore, consider another option from the Portuguese Treasury if you read this article when the Euribor is below zero.
Certificados de tesouro (honestly speaking, I need to learn how to translate this name correctly. If you know, write in the comments, please! They offer a fixed rate depending on the term of the deposit. During the first and second years, the annual rate is 0.7%. From the third year, the rate will increase and reach 1.6% in the seventh year. After that, the certificate expires, and the entire deposit amount will be returned to your bank account.
Interest will accrue annually. Unlike Certificado de aforro, it won't be added to the deposit amount but will be credited to your bank account. The deposit amount must be between 1.000 - 1.000.000 euros. During the first year, you won't be able to withdraw money from this deposit. This tool looks very inconvenient compared to the Certificado de aforro, but perhaps, with a low Euribor rate, it will be useful for those who already have large enough savings that will need to be kept for a little more than a year.
The procedure for obtaining the Certificado de tesouro is similar to the process for obtaining the Certificado de aforro described in this article.
5-10 years left before entering a Portuguese university
In this case, you can also use the tools described above. It is also expected that some products will become more profitable during this period. Therefore, it makes sense to keep abreast and monitor the profitability of both the product you have chosen and alternative ones, and, if necessary, transfer savings to them. At the same time, the level of risk should remain low. Refrain from being tempted to play on the stock exchange with funds set aside for your child's education.
Many banks offer savings accounts for children, Conta poupança jovem/Conta poupança para crianças. Unfortunately, today the profit on them is even lower than on deposits. It is from 0 to 0.2% (according to information from Deco Proteste in June 2022).
What is good about such accounts is that they create financial discipline. You subscribe, and the money will be debited from your account automatically every month.
In principle, considering these terms, it is already realistic to postpone every month without ruining the family budget. To collect 23,000 euros, you need
- to save 383 euros per month for 5 years;
- to save 191.6 euros per month for 10 years.
This is without taking into account any percentage of income. If it is, albeit minimal, and even with the capitalization of interest, you can collect the required amount faster.
Another advantage of savings accounts for children is a shallow entry threshold. They allow you to save a minimum of 10 euros per month. This makes financial discipline available to those who are prevented by circumstances from saving more. However, situations are different, and even if it so happens that at the moment, a person's income is low, you still need to strive to make savings for the future, both for yourself and your children.
Of course, if you put aside 10 euros a month, you won't be able to save up for the university. But 1000-1200 euros will be collected, which can cover the payment for the first year of study at a university (and take a loan for other expenses) or pay for a child's education in a driving school, or help a child buy the first car, which he will drive to work, to earn and cover the expenses independently. The main thing is that at least some amount has been accumulated, and there will always be a good use for it.
More than 10 years before entering a Portuguese university
Again, all of the above instruments can be used if you don't allow any level of risk in saving for higher education. However, if you are willing to take risks, you can use long-term investment tools, which promise higher returns in theory.
Retirement savings plans, Planos poupança de reforma, are created to preserve and grow your wealth over the long term. You can find a detailed description of this tool in this article on Withportugal.com. I will only highlight the main points.
- The PPR Fund is an investment fund. Therefore, it doesn't guarantee any definite return, but the hypothetical long-term return is likely to be much higher than other instruments.
- Unfortunately, there is no insurance against a complete loss of capital.
- In the short term, drawdowns are possible, so I only consider this instrument for education savings if less than 10 years are left before admission.
- In addition to the prospect of higher income, PPR products are also good because their income is taxed at a lower rate than income from all the above products. If you withdraw money from the PPR fund to pay for education, you will pay from 21.7% to 8.6%, depending on how long your funds have been in this fund. Income from deposits, savings accounts and certificates is taxed at a rate of 28%.
You can create a pension savings plan in the name of an adult or a child. For example, grandparents can get involved if they want to ensure their grandchildren's future without transferring money through their parents. The child will have full access to this fund from the age of 18.
On the Internet, you can find references to Planos poupança de reforma/educação (PPR/E) and Planos poupança de educação (PPE). They have provided favorable conditions regarding the taxation of income that would have been spent on education. But unfortunately, no bank or investment company currently offers such products.
If it was not possible to collect the necessary amount for studying at a university
In this case, you can take an educational loan. A loan is issued to a student of a public or private university or polytechnic to cover the cost of studying in Portugal for an undergraduate, graduate, postgraduate or technological specialization course. To qualify for an education loan, a student must be a Portuguese citizen or holder of a permanent residence permit for this country.
You can get a loan from 1,000 to 5,000 euros per year, in case of the successful completion of the course. The amount borrowed for a year will be transferred monthly to the student's account in equal installments. The receipt of money after the 1st course depends on the student's transition to the next course, which a document from the educational institution must confirm.
The repayment period is usually between 6 and 10 years (duration of study multiplied by 2) according to the agreement between the student and the bank. The count starts from the date the credit was used.
The interest rate on a loan is calculated as the Euribor rate + the maximum spread of 1.25%.
You can read more about the conditions of an educational loan on the Sociedade de Garantia Mútua website.
No matter how you sponsor your child's higher education, I hope you can do it as painlessly as possible for the family budget!