Saving For Children’s Education
One of the major decisions parents make when having children is which school to send them to. Of all the options available, some have major financial implications.
There are age-old arguments as to which school is best. But really, it just matters that your child is happy at school and that they can reach their potential.
Let’s look at some of the different schooling options.
- Local public school.
- Academically select or specialist program school e.g. Perth Modern or John Curtin College of the Arts.
- Faith-based schools including Catholic, Anglican or Uniting Church. Examples include Aquinas, Iona, Santa Maria, All Saints or St Stephens.
- Private Independent schools e.g. Methodist Ladies College, Christ Church Grammar.
As a guide to the costs associated with each, The Australian Scholarships Group Friendly Society Ltd (ASG) organisation regularly publishes their “Planning for Education Index”. This incorporates a range of variables including school fees, transport, uniforms and excursions, however does not include boarding fees which can as much as double the cost for our regional clients.
So how do you pay for the education costs?
- You may be able to pay for it from annual cash flow. This will largely depend on how much you earn, how many children you have at school at one time and which school you choose to send your children to.
- Borrowing against the equity in your property is another option to help meet the annual education cost.
- If you make the decision early in your child’s life as to the school they will attend, you can start saving in advance to build up an amount of cash to help cover the annual cost of schooling. Be sure to index the fees in your calculations as there was a time that school fees were increasing at a rate of 5 – 6% per annum. This has slowed somewhat recently and is subject to local economic conditions, but fees do still rise year on year, so you need to make allowance for this.
If the 3rd option is your preferred choice, the next consideration is the best way to save in advance. Let’s look at the options.
- You save money on a regular basis into a high-interest savings account or better yet, in a loan offset account if you have one.
- Shares or Managed Funds. This may be a better option if the funds are going to be invested for a minimum time frame of 5 years. Any shorter term leaves the investments too exposed to short term market fluctuations and you may be required to sell the investment at a low point in the share market cycle when the school fees become due.
- Insurance bonds. These can offer a tax advantage, depending on the taxable earnings of one or both parents. They are taxed at a rate of no more than 30% which can be particularly attractive for high income earners.
- Education Savings Plans. These also offer tax advantages in that they are taxed at no more than 30% and if you use the earnings to pay for education costs, any tax paid is refunded to you.
Again, ASG have a good summary of the options available on their website.
Other areas we address in conversations with our clients include:
- Applying for a scholarship. There are a lot of schools that offer scholarships to attract talented students to their school. Testing is done early in the year and this helps to reduce the cost of educating your child at that school.
- The potential to buy a home in an area that has access to a good local public school. Residential areas that are within a specific school catchment zone typically do have higher prices. The rationale is that it may be less expensive overall to buy a higher priced home than to pay for a private education. Senior Lecturer in Economics, Finance and Property at Curtin University Mr J-Han Ho conducted research on this as part of his PhD. He concluded that families could save up to $200,000 per child by buying a house in the catchment zone of a highly-rated public school.
- Government financial support is available for regional families to help meet the cost of children living away from home for their schooling. This is subject to a parental means test and more information is available on the Department of Human Services website.
- For our regional clients, their children are now leaving home one year earlier, sometimes when they are 11 years old. It is hard for every parent to see their child leave home but especially so for regional parents when the children are still so young. For this reason,many parents consider buying or renting a home in the location where their children attend school,so the children can still have the comforts of home and the support of at least one parent. This typically results in the working spouse commuting between the family home and the second home where the children are being schooled.
Whatever your plans for the education of your children, there are many options to consider. Planning for it, will only broaden your options for providing the family and school environment that best supports your child’s development and well being.
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