Saving for a private education

With private education costs constantly rising, finance experts have expressed that it is best to start saving as soon as you can. After all, the earlier a savings plan is started, the less pressure there will be throughout your child’s schooling. A longer time frame for investment will also allow you to take on more risk to potentially maximise your returns.

Many fees at the more exclusive private schools are approaching the $25,000–$30,000 mark and are continuing to rise every year, and this doesn’t take additional costs such as uniforms, excursions or educational supplies into consideration. According to The Age, fees at private schools rise more quickly than inflation, typically rising between 5.5 per cent and 7.5 per cent a year compared to inflation of three per cent a year.

Even when you do plan ahead, the costs can sound exorbitant. The technical services manager at ipac Securities, Colin Lewis, really brings the point home, calculating that parents would need to save about $940 each month (from the child’s birth until the completion of Year 12) to send them to a private school with annual fees of $25,000.

Savings tips:

  • Start a savings plan as early as possible (taking the tax rate, expected inflation and rising school fees into account), so that you are aware of the financial sacrifice that needs to be made and can implement a savings strategy. Make a commitment to be disciplined and stick to your plan.
     
  • It’s a good idea to reassess your child’s educational performance and goals at set points throughout their development because this will affect the type of education they require and the amount of savings that are required. For instance, as your child grows they may express an interest in attending a specialist school such as a performing arts school or a vocational technical education centre.
     
  • It’s worth brushing up on your financial knowledge early on so you can find the best method of funding your child’s education while navigating the complicated world of tax. Do your homework on all the available options before you turn to a third party such as an educational investment fund.

Popular education savings strategies:

  • Mortgage offset — this strategy involves making extra repayments on the mortgage (placed in a linked mortgage offset account, which reduces the mortgage balance on which interest is calculated) and then redrawing the money to pay school fees.
     
  • Insurance or investment bonds — these are an attractive option for many because they attract significant tax concessions when used for educational purposes and are capital-gains free when held for more than ten years. 
     
  • Online savings account — this is an option with minimal risk that offers plenty of flexibility, but you will need to take tax into consideration.
     
  • Managed funds or shares — these are higher risk and require a longer-term investment strategy.
     
  • Education savings products — this includes products offered by the Australian Scholarships Group and a number of banks and friendly societies (just be sure to read the fine print because some products have high rates and apply penalties in certain situations — if your child does not decide to pursue higher education, for example).
     
Yearly school fees amount ($) Monthly savings contributions ($)
$10,000 $376
$15,000 $564
$22,000 $827
$25,000 $940

 

 

 

 

 

Courtesy of ipac Securities, The Age, January 2012

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