How to SAVE for your children’s education
Updated: May 21, 2020
If you are a parent you are fully aware that the cost of private education is continually rising, with some schools in Sydney charging fees of up to $38,000 a year, sometimes more (in boarding and other cases) ; and that doesn’t include uniforms, excursions and after school activities. I know this first hand as my daughter has been to two school private schools during her eduction; A top tired school and a lower tiered one.
(Rankings and costs of Sydneys private schools displayed below the article)
The cost of private primary and private school is one thing, but schooling doesn't stop there- then there paying for a university degree (particularly in the popular disciplines like law, IT and medicine) fees are also rising. Families are taking on more debt and the associated risk to ensure their child gets the best educational outcomes and start at life.
The bottom line is that education is getting more expensive and competition for entry to the best courses will only get more fierce.
No parent wants their child to start their working life with a huge debt hanging over their heads, potentially pushing stress levels of a new job, continued training and independent living costs to a toxic place of severe stress. Its simply not healthy to have the weight of the world on your child’s shoulders while they are trying to figure out their place in the world. Of course a little bit of hard work never hurt anyone and I’m not suggesting you spoil them, simply take into account the world is changing rapidly and jobs, relationships and housing is not as secure or accessible as it once was. Young adults forced into high stress situations can present with trauma like responses and develop unhealthy coping mechanisms. They also tend to burn out far quicker in their new found careers and personal lives.
But don't fear there are easy ways to save and prepare!
Starting a savings plan when your children are young may be a very wise solution . Parenting is hard, it can be emotionally challenging and financially demanding. But the key is to put a sound plan in place as early as possible and stick to it. The earlier you start the less you actually have to do later! Just think of the return on investment! A secure well functioning child is priceless! Life can throw many curve balls- but financial challenges don’t have to be one of them as future finances are usually very easy to plan and prepare for.
Most parents know the importance of doing this but are unsure how to start or what product or strategy to follow, particularly when there are tricky tax rules to be aware of. For example, if you put the investments in your own name any interest income is added to your taxable income and may reduce your Family Tax Benefits. If you put the investments in your child’s name, penalty tax rates apply once they have “unearned” income in excess of $416.
So what to do?
Here are a number of options to consider.
Remember to talk to your financial advisor of tax professional if you are unsure of the best option for you.
One option is an “investment bond”. These products sometimes have other names but are essentially tax paid life policies where you choose the investment strategy. If they are held for at least ten years the proceeds are tax-free when cashed in.
One useful feature is that the investor can make a contribution of up to 125% of the previous year’s contribution and retain the tax-free status after ten years. Income is reinvested and not included in the investor’s taxable income. If you cash it in before ten years there may be tax payable but you can use the proceeds for any purpose – not just for education expenses.
Friendly society education plans
These are similar to investment bonds in some ways. The friendly society pays tax at the corporate tax rate of 30% and income is reinvested. However a special tax concession allows the friendly society to claim back the tax paid if the funds are used for educational purposes.
The plan proceeds must be used for educational purposes but there is more flexibility in making contributions and withdrawing funds than with an investment bond.
Mortgage offset account
If you have a mortgage you can build up funds in a mortgage offset account. This works both ways by reducing your interest costs at the same time. You can draw on the offset account when school fees become due.
Some other options may be;
A term deposit is a cash investment held at a financial institution (like your regular bank). Your money is invested for an agreed rate of interest over a fixed amount of time, or term. However these are currently at very low interest rates- under the rate of inflation, which means your money will unlikely grow.
High yield savings accounts
A savings account with monthly contributions automated from your checking or debit account. Don't be deceived by the name high yield these can still be very low incrust rates of return. most in Australia currently below inflation. These are good for saving short term. Amounts of pooled money after a year or so can then be invested elsewhere.
Or even a structured investment set up by your financial advisor.
You could consider a trust or property asset that produces an income to later pay the kids expenses.
One solution rarely suits every person and we recommend that you talk to your licensed adviser to determine which options best suit you and your family’s circumstances.
Below is a chart of private school fees in Sydney for your reference. Taken from WWW.SYDNEYPRIVATESCHOOLS.COM.AU
www.ato.gov.au, “Individual Income Tax Rates - Children”; “Income of individuals under the age of 18”
SYDNEY PRIVATE SCHOOL FEES 2019
Information categorised as follows;
MOST to LEAST expensive
The King's School
Sydney Grammar School
St Catherine's School
Trinity Grammar School
Presbyterian Ladies' College
St Joseph's College
St Andrew's Cathedral School
Sydney Church of England Grammar
Knox Grammar School
Ravenswood School for Girls
Pymble Ladies' College
St Ignatius' College
International Grammar School
Santa Sabina College
St Luke's Grammar School
Monte Sant' Angelo Mercy College
Kinross Wolaroi School
Central Coast Grammar School
Hunter Valley Grammar School
Oxford Falls Grammar School
Calrossy Anglican School
Northern Beaches Christian School
St Augustine's College Sydney
Pacific Hills Christian School
Mount St Benedict College
Our Lady of Mercy College
William Clarke College
Oakhill College Castle Hill
St Patrick's College, Strathfield
Chevalier College Bowral
St Aloysius' College
Bishop Druitt College
St Philip's Christian College
Rouse Hill Anglican College
Green Point Christian College
St Gregory's College Campbelltown
St Scholastica's College Glebe Point
St Pius X College
William Carey Christian School
St Columba Anglican School
St Edward's Christian Brothers' College
Broughton Anglican College
Thomas Hassall Anglican College
Lindisfarne Anglican Grammar School
Arndell Anglican College
Edmund Rice College
Christian Brothers High School
Lakes Grammar - An Anglican School
Trinity Anglican College - Albury
St Dominic's College
St Mary Star of the Sea College
Amity College, Prestons
Trinity Catholic College
Richard Johnson Anglican School
St Patrick's Marist College
St Columba's Catholic College
Caroline Chisholm College
Gilroy Catholic College
St Andrews College
St John Paul II Catholic College
Bede Polding College
St Johns College
Trinity Catholic College
St Charbel's College
Mater Maria Catholic College
St Joseph's Regional College
St John Paul College
James Sheahan Catholic High School
Malek Fahd Islamic School
Patrician Brothers' College
MacKillop Catholic College
Penrith Anglican College