March 11, 2015
A bit of homework is essential to achieve top grades in the quest to fund the education you want for your children.
The start of the school year brings the excitement of new bags, books and uniforms. But for mums and dads it also renews the financial strain of education costs.
For a child born in 2015, it’s estimated that parents choosing schools in larger cities like Melbourne could face total education costs of up to $502,088 from kindergarten (prep) through to year 12.*
For the current academic year alone, parents with teens are looking an annual education cost per child of $4,544 for a public high school; around $13,114 for a Catholic school; and about $23,477 for an independent school.
Funding a child’s education doesn’t have to mean working yourself into the ground. The solution lies in careful planning and where possible, taking a long term approach to building a pool of savings and investments specifically targeted at education costs.
With this in mind, let’s look at some of the investment options available.
Cash-based investments - safe but low returns
A high interest savings account earmarked for education bills is a very safe option. The downside is that your money will earn a meagre return. In addition, any interest income is fully taxable, and you won’t get the benefit of capital growth. So a savings account is a great place to park cash needed to meet short-term school costs but it’s not usually an ideal vehicle for long term saving.
Your home loan can help
Your home loan can be a surprisingly effective tool. Tucking spare cash into an offset account or directly into your home loan will see you save on loan interest charges, and if you have a redraw facility the money is still available, virtually at call, when you need to pay education expenses. It might be an idea to speak to your Mortgage Choice broker to see if your loan allows you to do this.
Alternatively, a managed share fund can provide opportunities for capital growth, and it’s a very simple way to achieve instant diversification. Other investments like education bonds and scholarship plans offer the appeal of concessional tax treatment.
Professional advice is essential
The type of investment you select to save for school costs is only one side of the coin. Another issue is whose name the investments are held in. This is an area where professional advice is absolutely essential. The impact of tax on investment returns can vary widely according to the structure of your investments and it can be costly to change the structure further down the track.
Contact me today on 03 9432 6070 to discuss the options best suited to give you the freedom to choose your preferred education for your children.
*Australian Scholarships Group Media release: ASG Planning for Education Index 2015, 29 January 2015