Saving for Children’s Education

Did you know that over the past decade the cost of private school education has increased by 61%. This compares to wage growth of only 34% over the same period.¹ The ASG Planning and Education Index has metropolitan New South Wales as the most expensive region for private school education. The ASG website projects that the cost to educate a child born in 2018 to be $547,414. Note that is per child. So over $1million dollars to put two children through private school. By comparison the dearest region for a public school education is metropolitan Victoria at $75,263. A faith based education in metropolitan Victoria is $223,318, metropolitan NSW $251,143. The sooner parents save for their children’s education the less financially painful this journey will be. The main advantage of starting a prudent saving plan early is to get the financial benefit of compounding your investment earnings. Remember, when formulating your investment plan you are saving for your children’s education so you don’t want to incur unnecessary financial risks. Your investment strategy may incur some market volatility so long as the underlying investment is secure. Some typical saving strategies include: 1. Additional mortgage repayments Make extra repayments into your offset account that is attached to your mortgage. This will help you reduce your non tax deductible interest on your mortgage and allows you in the future to withdraw these funds to pay school fees. This is very different strategy to directly paying down your mortgage without having an offset account. The potential problem of paying down your mortgage is that the bank may not allow you to borrow back or increase that reduced mortgage in the future. This is common where the family financial circumstances have changed. For example, at the time of the original mortgage both husband and wife were working, now only one is working. 2. Insurance Bonds These are like managed funds, they are available through insurance companies and friendly societies. This product has tax advantages. The main advantage is if you hold this fund for 10 years you will not be taxed on the principal and earnings at redemption. This product is generally beneficial to those parents that both work and are both earning in excess of $80,000 per year. 3. Family Trust This is a more complicated strategy compared to the alternatives above. A family trust has taxation advantages particularly where you have a lump sum to invest now, i.e. an inheritance, the proceeds from the sale of shares or property, a bonus from work etc. This strategy can prove particularly advantageous where you have older children, a non-working spouse or a spouse looking to stop work in a few years time, or parents or grandparents that are in a low tax bracket. Should you require assistance with developing strategies to help finance your child’s education please feel free to contact Peter Quinn by submitting an enquiry or calling us on +61 2 9580 9166. 1 Source: Australian Scholarship Group website. The information in this document does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. It is important that your personal circumstances are taken into account before making any financial decision and it is recommended that you seek assistance from your financial adviser.