A quality education is a lifelong resource and a powerful launching pad for young Australians. But with education costs rising at more than twice the rate of inflation, it’s more important than ever to plan ahead for the investment you’re making in your child.i
Grandparents may also like to help their family by investing money for the future school and university costs of their grandchildren. This is becoming increasingly common with 29 per cent of grandparents wanting to draw down on their super to pay school fees.iiThis can be done in the grandparent’s name or the child’s name, depending on your individual circumstances.
The actual cost of your child’s (or grandchild’s) education will depend largely on whether they are enrolled in a public, systemic (e.g. Catholic) or independent private school.iii
The ASG survey found that the cost of private education in metropolitan areas – from preschool to year 12 – ranged between $360,000 and $550,000. Private schools in regional areas are slightly more affordable.
In contrast, Melbourne public schools, even at 12 percent above the national metropolitan average, will still only set you back $75,000. Regional areas, again, cost less on average at $50,000. These estimates include the ‘voluntary contributions’ in lieu of fees that most public schools ask for.
Systemic schools, such as religious and other alternative institutions, sit between the two extremes. Here the national metropolitan average is an estimated $230,000 and $172,000 for regional areas.
Of course, fees aren’t the only cost you need to budget for. There are the traditional outgoings of uniforms, books and extracurricular activities. It’s also becoming increasingly common for schools to require students to purchase laptop or tablet computers.
ASG estimated that in 2016 families were spending an average of $1000-$3000 on these ‘extras’ per child every year. It was also found that these costs increased as the student aged, whether they were private, systemically or publicly schooled.
And let’s not forget the cost of higher education. An undergraduate degree currently costs between $6000 and $10000 each academic year, depending on the course chosen.iv Most students choose to defer payment via a HECS-HELP loan, but many families would like to help their children or grandchildren pay some or all their fees upfront to avoid a large student debt.
Where students live away from home, parents may also need to factor in the cost of student accommodation and other living expenses.
Explore your savings options
Like any major investment, the sooner you start saving the more options you will have. You could open a dedicated savings account, but the interest rate is unlikely to keep pace with inflation. Here are some popular strategies for long-term education savings:
- Education Funds. These are specifically designed to lock money away for your child’s education. They offer some attractive tax concessions, but there are restrictions and fees to consider.
- Term deposits. Are simple and virtually risk free, but interest rates may not keep pace with inflation.
- Managed Funds. You don’t need much money to get started, you can make regular contributions and you get the benefits of diversification and professional management.
- Insurance Bonds. Like a managed fund, these offer a diversified investment menu but with additional tax advantages. Earnings are taxed inside the bond at the company rate, which may be less than your marginal rate. If you withdraw your money after 10 years, all investment earnings are tax free.v
Investing in a child’s education is a long-term commitment, but the satisfaction that comes from knowing you have given them the best possible start in life is priceless. Call us if you would like to discuss an education savings strategy for your child or grandchild.
i Trading economics, http://www.tradingeconomics.com/australia/inflation-cpi
Counting the cost of education
Owl Financial Management is an Adelaide Based Financial Advice Firm