Saving for Kids Education
A child’s first day of school is a proud moment in any parent’s life… what will they grow up to be, will they make friends, are their lunch box snacks healthy enough?
When our children are born, the majority of parents will set up a savings account with their existing bank and contribute regularly – perhaps family members add parcels of cash at birthday / Christmas – but is there a purpose for this money? On their 18th birthday does your child get a nice parcel of cash to spend on a new car / new clothes, Contiki tour?
How many new parents consider saving for their children’s education as an essential expense right from the start? This is perhaps one of the largest investments you will make besides the family home and superannuation. Depending on what corner of Australia you reside, private school fees can range between anything from $5,000 to $25,000 plus per year. Astute parents make preparations for funding this expense long before their child has learnt to read or write. The alternative is to pay the annual fees from cashflow which can put an extra strain on finances, especially if you have more than one child attending private school at the same time.
For young families with a mortgage and increasing life expenses, making a plan and provisions for funding school fees early makes for a less painful financial transition when the time comes to send your children to the chosen school.
Take an average secondary school fee of $15,000 pa which indicates fees only – if we generously add in an extra $5,000 for uniform, trips, sport, instruments we are looking at $20,000 per child per year.
Education Fee Example:
$10,000 per year for primary school
$20,000 per year for secondary school
Primary = 7 years = $70,000
Secondary = 6 years = $120,000
Total Education Expenses: $190,000 per child
Times that by 3 and you are well over half a million dollars.
If you have chosen a private school education for your child, it is prudent to start a savings/ investment plan for the fees as soon as possible. By the time your child steps into their pre-primary class at age 5, you could already have accumulated savings and returns to grow the education pot enough to pay for the first few years in full and keep the majority invested to continue to grow and earn returns and benefit from compound interest. Depending on how early you start, how much you can contribute each month and the cost of the fees you have chosen, you may also have a long term growing investment that will still provide capital to help with higher education costs if that is an option for your child.
In the low interest world that we are currently experiencing, a bank account may not provide you with the growth you are look for to pay increasing school fees, therefore, if you are interested in earning returns above the current bank rate, there are various investment options available to you. Some of these are:
These type of bonds have tax benefits if you do not withdraw your cash for 10 years, therefore would be more appropriate for consideration if you are intending to send your child to private secondary school only.
Low risk investment option that serves as a saving vehicle and offers a slightly higher return than a bank account. Chose from a variety of time periods during which you do not access your money. This ranges from 6m, 1, 3, 5 years.
A fund that you can contribute to regularly to be invested and managed via a fund manager with the objective of earning you returns and growing your wealth. You can access your money at any time during the investment period and there are no time considerations.
In all of the above options, professional advice should be sought to determine your preferred risk profile so that you are comfortable with how your money is being invested, the risks associated with investment and the returns & fees you can expect.
However you choose to save for your child’s education, the earlier you can begin the better and seek professional financial advice to make sure the investment option is right for you.
Jodi Esudier works with professional families to provide positive strategic advice and establish long term wealth plans. Jodi also frequently runs workshops to educate and empower women to take control of their finances.