“An investment in knowledge pays the best interest”
– Benjamin Franklin
With education costs rising rapidly each year, it is now more important than ever to plan ahead for the investment in your children.
The ASG survey in Australia has revealed that the average cost of private education will set you back anywhere between $366,000 to $550,000 from preschool through to Year 12. Let’s not forget the costs of bus fares, school trips, uniforms and other miscellaneous expenses that you’ll be covering the cost of also. To put this in perspective, the median house price in Perth is approximately $510,000.
Other surveys have also revealed an alarming statistic that over 60% of parents have made no plans to save for their child’s education, and approximately 29% of grandparents using their superannuation savings to cover the costs.
It’s clear something needs to be done, but what is the smartest way to save for your child’s education. I’ve outlined some of the key strategies below:
- Savings Account
Many Australian and international banks will have savings accounts designed to allow you to contribution small amounts of money each month into an education savings account. While a slightly smarter decision than just storing cash under the bed, it’s hardly the best avenue to grow the money.
- Education Funds
‘Mutton dressed as lamb’ sums up this category nicely. Most education funds are designed to allow you as parents to contribute a small amount of money each month into a range of managed funds, resulting in high fees and typically, some form of exit penalty if your child decides to be a labourer rather than a dentist.
- Insurance Bonds / Savings Plans
Many of these products will typically carry tax benefits if they are held for certain periods or time, such as 10 years, however are typically accompanied by high fees and exit penalties. Tread with caution here and do your homework.
- Managed Funds
Managed funds and index funds can be a sensible approach, with the right platform, to grow your savings and avoid high brokerage or transaction costs. This can allow you to diversify your savings and investments and grow your savings to meet your child’s education goals.
Constructing a share or Exchange Traded Fund (ETF) portfolio can also be a sensible approach, to reduce the ongoing costs of your portfolio. You do need to be mindful of the impact of brokerage here on your long-term savings goals.
- Offset Account
An offset account is a bank account that links to your mortgage account allowing you to add to your savings, while offsetting interest charged on your loan. If you have a mortgage on your primary residence, this can be a sensible approach as the return on your savings is effectively the interest rate charged on your mortgage. Keep in mind, you need to ensure you’re disciplined here and don’t simply spend the funds elsewhere.
Remember, the earlier you start saving for your child’s education, the less you’ll have to put away each month. With education costs exceeding median house prices in some cities, it’s important that you have an achievable plan in place.
To Your Financial Success!
Jarrad Brown is an Australian-trained and qualified Independent Fee-Based Financial Adviser with Australian Expatriate Group of Global Financial Consultants Pte Ltd providing specialist financial advice and portfolio management services to international and local professionals in Singapore.
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Jarrad Brown is an Authorised Representative of Global Financial Consultants Pte Ltd – No: 200305462G | MAS License No: FA100035-3
*Please note that Jarrad Brown is not a tax agent or accountant and none of the content outlined here should be taken as personal advice. You should consult your tax agent and financial adviser to review your current personal finances and financial goals to consider whether this strategy is appropriate for you.