Planning a child's education can be stressful at the best of times. Add in the complications of sending him or her to an overseas country with a different language and culture, and that stress increases substantially.
But a growing number of Asian families are doing just that. In China, for example, a record 544,500 students went overseas for schooling at some level in 2016, according to China's ministry of education. With that number up from just under 400,000 in 2012, the trend is clear. The United States is easily the most popular destination, but many are now heading to the United Kingdom, Australia and Canada. According to the Knight Frank wealth report of 2017, in the UK alone the number of Chinese students enrolled in private schools has risen 191 percent in the past 10 years.
The majority of those students return to their home country after their education, but a substantial number seek careers in their country of study and put down long-term roots. It's a trend particularly among wealthier families, says Luis Lopez, a regional vice president of private banking at RBC in Toronto.
“You have the chance to give your children the opportunity to study in Canada, the U.S., to learn a new language, get a different type of education and, depending on what the kid thinks, to give them the opportunity to settle in a different country," he says. “So it's very normal that high-net-worth individuals, particularly those who come from emerging markets, would try to provide that for their children."
To be sure, this is not a cheap endeavour, but one that is well within the means of high-net-worth families. However, there are several issues to consider, from choosing schools and managing currency exchange, to determining the best way to finance housing in a foreign country. Many students seek work following their education and then seek permanent residence in their country of study.
“As the child settles and finishes university and maybe then buys a house, then you have not only people crossing borders, but also assets crossing borders," says Lopez.
Having a comprehensive plan in place that can provide for the needs of both the student and the family supporting them is key. Here are some things to consider when planning your child's overseas education.
Studying abroad: Start the education plan early
A post-secondary education may be the goal, but many families choose to send the child over long before - at the high school or even middle school level. In addition to providing a chance to acclimate to a new country, doing so can be particularly beneficial if the student does not yet have a good grasp of English.
“The earlier the planning starts around improving the child's English, the better," says Iggy Chong, head of private wealth for Greater China at RBC. “That sounds intuitive, but there are children who struggle because they're not really ready. Eventually it catches up."
Another benefit is that spending a few years in the country before applying to universities may allow the student to avoid certain hurdles that international students often face, such as language proficiency tests. It also serves to get a head start in selecting schools and assembling a competitive application.
“The qualifying tests that universities require are basically easier to deal with - or not even necessary - if you're in the school system through junior high, because then you just move into the university stream like any other domestic kid," says Chong.
Figure out the location
RBC experts say the key decision in the education plan is determining in which country to seek the education. According to Chong, most families base this on which school or school system they prefer, or on whether the student plans to continue living in the country following school.
Renting an apartment or house is of course an option, but purchasing a property tends to be the preference of Chinese studying overseas, explains Gea Hong Tho, chief executive, Singapore branch for RBC Wealth Management.
In addition to providing a stable base for studies and living, particularly if a parent is accompanying the child, it can also be rented out when not in use and establishes a legacy asset in a foreign currency. "Property is always one where, since the kids can use it, (parents) will treat it as an opportunity to invest in property," says Tho.
Paying cash for the property may be feasible, but Tho says clients often finance, because of the cheap cost of debt and tax deductions available if all or part of the property is being rented out.
It's also important to consider taxation issues that may differ from country to country, such as capital gains levies on real estate, and recently adopted restrictions on foreign buying in regions enacted to cool housing markets. Canada, for instance, has implemented a 15 percent tax on foreign real estate purchases in the Toronto and Vancouver markets. Selling a property may also have additional costs depending on the length of residency.
Managing the money
Affordability may not be a chief concern for many wealthy clients, but the costs do bear noting, especially if multiple children are looking to study abroad. The costs can vary due to considerations such as country or school, choice of school program and living situation. According to Chong, a good starting point is in the range of US$150,000-$200,000 per year, with the potential to go much higher.
It's a common practice to invest in a business in the country of study to generate sustaining income for the student and potentially the parent. This has the benefit of potentially better returns than a simple investment account. Purchasing residential units for rent has been a popular option, but Chong says that is changing.
“As opposed to bringing money to just invest in bonds, or just putting your money into real estate and collecting rent, there are early signs of investors looking to in more passive businesses," such as hotels and food businesses, he says. "I think to some degree what we're seeing is the maturity of the trend."
Planning a foreign education can entail a lot of detail and requires sound advice, but the end result is a worthwhile goal that families will surely continue to seek in increasing numbers.
“I think there's the underlying piece that getting an overseas education has always been, no matter what the culture, a good thing to do for your children," says Chong.
The material herein is for informational purposes only and is not directed at, nor intended for distribution to or use by, any person or entity in any country where such distribution or use would be contrary to law or regulation or which would subject Royal Bank of Canada or its subsidiaries or constituent business units (including RBC Wealth Management) to any licensing or registration requirement within such country.
This is not intended to be either a specific offer by any Royal Bank of Canada entity to sell or provide, or a specific invitation to apply for, any particular financial account, product or service. Royal Bank of Canada does not offer accounts, products or services in jurisdictions where it is not permitted to do so, and therefore the RBC Wealth Management business is not available in all countries or markets.
The information contained herein is general in nature and is not intended, and should not be construed, as professional advice or opinion provided to the user, nor as a recommendation of any particular approach. This document does not purport to be a complete statement of the approaches or steps that may be appropriate for the user, does not take into account the user’s specific investment objectives or risk tolerance and is not intended to be an invitation to effect a securities transaction or to otherwise participate in any investment service.
The text of this document was originally written in English. Translations to languages other than English are provided as a convenience to our users. Royal Bank of Canada disclaims any responsibility for translation inaccuracies. The information provided herein is on an as-is basis. Royal Bank of Canada disclaims any and all warranties of any kind concerning any information provided in this report.
© 2017 Royal Bank of Canada