5 smart ways to save for the kids’ education - Women's Agenda

5 smart ways to save for the kids’ education

13 years of education for your children isn’t cheap, even through the public system. Jenny Cattach has some great tips on how to start saving for the school years.

While many mums like me might be quietly pleased to have the kids back at school this month and the routine of running a family back in order, one thing they may not be looking forward to are the expenses that go with schooling.

The cost of education has been rising at a faster rate than inflation for decades, making it one of the fastest growing life costs for Australian families – and one of the biggest money concerns, in particular for women.

According to ASIC’s Australian Financial Attitudes and Behaviour Tracker and research undertaken by RMIT University, providing for children’s education costs is the second highest financial priority among Australian women, whether they already have kids or not.

Whether you choose to send your children to a public or private school, it’s a big expense. Australian families spend on average a total of $50,000 on their child’s education and childcare. Laptops, school excursions, sports costs and ‘voluntary fees’ are now the norm at public schools, and parents will need to have funds available for these.

And if you opt to send your kids down the private education path, school fees will cost you an average $216 a week, with high income families spending more than a quarter of their household budget on education.

Although giving your kids a good education might be high on your list of goals as a parent, it’s not always easy working out how much you’ll really need. In many cases, families who haven’t planned for the costs involved with private education are forced to revise their children’s education plans, which can mean changing schools midway through or simply reducing their lifestyle to make ends meet so they can put the kids through school.

So if saving for your children’s education is a financial priority for you, here are some ways to go about it over a number of years.

1. Plan early for the costs

First and foremost you need to figure out how much you’ll need to save and how you are going to achieve this. You’ll need to account for inflation and rising costs of education – a financial adviser can work through this with you. You’ll be surprised how little the regular amount you need to put away actually is if you start early.

2. Consider a managed fund

Managed funds can be an easy and effective way to invest for your kids’ education. A managed fund is a professionally managed investment portfolio which individual investors can buy into. You can usually start investing with as little as $1000 then set up a regular investment plan with monthly, fortnightly or weekly payments. My husband and I opted for a managed fund as an education savings plan when our first child was born eight years ago. We took this option as it gave us a plenty of flexibility and control over our investment, without being locked into a rigid set of rules. Plus, once it was set up it required very little ongoing time and thinking from us.

3. Take advantage of your home loan

Using a mortgage redraw facility can be a great option to build education savings for some parents, especially in the current low interest rate climate when the interest paid in a savings account or term deposit is minimal. It simply works by paying any spare savings for education directly onto your home loan and down the track redrawing the money to pay school fees. By putting excess funds into your home loan they are effectively earning the interest rate on your home. If you’re the type who has the discipline to save via your mortgage, this may work well for you. But it can be dangerous strategy if you redraw for other purposes like upgrading the house or a holiday, in which case you may start going backwards with a growing debt.  

4. Invest in insurance bonds

Insurance or ‘investment’ bonds can be a tax effective option worth considering. They’re long-term investment products issued by insurance companies. If you’re a higher income earner, the big advantage of these types of investments is you won’t pay any more than 30 per cent tax on your investment earnings, providing you don’t dip into your funds within a 10 year period. So let’s say you plan to send your child to a private secondary school and invested in bonds soon after your child was born, you’ll meet the 10 year rule and can start drawing down on the investment tax-free. It can also be a suitable option for some grandparents wanting to help fund their grandchildren’s education.

5. Start a share portfolio

Investing in shares on the Australian Stock Exchange (ASX) is another option to help build a pool of savings for education. You can sell shares down the track and also use the dividends from your share portfolio to help pay for school fees. Shares can be purchased via a stockbroker, who will charge a brokerage fee for their time and advice, or do it yourself online providing you have done the research to know which shares to invest in and have the time to track their performance and know when to sell.

No matter how you go about building a nest egg for kids’ education, as with any long-term savings goal, it’s important to have a plan for your children’s education costs, start as early as possible and take a disciplined approach.

 

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