When to start your children’s education fund
Education will most likely be the biggest financial cost you will outlay for your children, and the numbers are not for the faint hearted; according to the latest nationwide survey from the non-profit education funding organisation Australian Scholarship Group (ASG), the total cost of a public education in metropolitan Australia for a child born in 2016 will be around $55,000. For a private education, the total soars to $468,397. If you happen to have a larger family and you’re keen to educate them privately, you’re looking at a spend equivalent to buying a house. And then there’s university. No wonder we call education costs the ‘second mortgage,’ and no wonder also that further ASG research reveals that 62 per cent of parents are concerned about the cost of supporting their child’s future education.
Even before you’ve selected a school or considered public vs. private, it makes sense to have your saving plan underway – as early as you possibly can. For most people those costs will be a long-term goal that may require five, 10 or even more years to achieve. Once you have a clearer idea of the costs, calculate how much you’ll need to put aside and for how long, using a tool such as the savings goal calculator, on ASIC’s Moneysmart website. “Consider asking payroll to set up a direct debit for a portion of your salary to go straight into your savings account,” says money expert Bessie Hassan from comparison site finder.com.au. “You can’t miss what you can’t see.”
Don’t forget to adjust contributions each year for inflation, especially bearing in mind that Australian private education costs are soaring by 5.5 per cent per year and have risen at almost double the rate of inflation over the last 20 years.
Choose your vehicle
Choosing the right savings scheme for your education fund can help you achieve your goals faster. “Right now, we’re seeing the lowest interest rates in history in Australia,” says Bessie Hassan. “And that’s bad news for returns on savings. That’s why it’s never been more important to compare what’s on offer. Shop around thoroughly; use your loyalty at your bank as bargaining power. You deserve the right vehicle to grow your hard-earned cash.”
Weigh up the pros and cons of options including term deposits, savings accounts, investment bonds and managed funds. Some savings plans are designed specifically for education costs; the ASG has a basic Education Fund for secondary and post-secondary costs, Supplementary Program for private primary, secondary and tertiary education costs and a Future Program that can be started before the child is born. ASG also has a range of educational resources for parents and an annual school fee payment service that spreads school fees into manageable monthly or fortnightly installments.
Enlist the family
Ask your family to help grow your education fund. “Instead of birthday or Christmas gifts, ask them if they can instead deposit money into the fund,” says Bessie Hassan. “Those big cash injections can make a significant difference.”
Play to your child’s strengths
If you’ve opted for private education, look at the scholarships and merit-based awards available for each school. If your child could be eligible, make sure you know when to apply and what the process is. Reassess your child’s educational performance and goals at set points throughout their development because this might affect the type of school they’re best suited to. Specialist or vocational schools come with varying price tags.
Remember the extras
It’s not just about the school fees. Whether you’re going public or private, you’ll still have to cover costs of uniform, textbooks, excursions and camps, musical instruments and more.
Deploy your super
Older parents could consider using their superannuation as a savings vehicle for education costs. This might involve increasing your contributions to super via either salary sacrifice or after-tax contributions, then starting a pension fund when you’re able to access your super.
Donate your inheritance
If you are expecting an inheritance, consider passing it straight to your children, to be held in trust. This can also be a handy way of avoiding the tax payable on your inheritance if it were to be transferred straight to you. A financial planner can talk you through this option.