Sandra K Stewart
- May 20, 2020
- 5 min read

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.

Investment bonds

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;

Term deposits

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

Sources:

www.ato.gov.au, “Individual Income Tax Rates - Children”; “Income of individuals under the age of 18”

https://www.privateschoolnews.com.au/sydney-private-secondary-school-fees

SYDNEY PRIVATE SCHOOL FEES 2019

Information categorised as follows;

SCHOOL NAME

SUBURB

YEAR 8

YEAR 10

YEAR 12

MOST to LEAST expensive

Cranbrook School

BELLEVUE HILL

$36,120

$38,100

The King's School

NORTH PARRAMATTA

$33,886

$34,586

$36,900

Sydney Grammar School

DARLINGHURST

$36,615

St Catherine's School

WAVERLEY

$33,160

$34,160

$35,080

Trinity Grammar School

SUMMER HILL

$31,460

$32,690

$34,770

SCECGS Redlands

CREMORNE

$31,200

$34,600

Presbyterian Ladies' College

CROYDON

$33,040

$34,080

Newington College

STANMORE

$31,347

$33,291

$33,984

St Joseph's College

HUNTERS HILL

$33,360

St Andrew's Cathedral School

SYDNEY

$32,035

$34,370

$33,270

Sydney Church of England Grammar

NORTH SYDNEY

$29,880

$31,460

$33,060

Knox Grammar School

WAHROONGA

$31,170

$32,940

Moriah College

BONDI JUNCTION

$28,186

$30,513

$32,885

Abbotsleigh

WAHROONGA

$30,830

$31,620

$32,840

Barker College

HORNSBY

$30,920

$32,820

Ravenswood School for Girls

GORDON

$31,980

$32,735

$32,800

Pymble Ladies' College

PYMBLE

$29,955

$31,005

$32,375

MLC School

BURWOOD

$29,952

$30,664

$31,584

Meriden School

STRATHFIELD

$30,100

$30,500

$31,470

Reddam House

WOOLLAHRA

$27,125

$29,305

$31,045

St Ignatius' College

LANE COVE

$28,600

$29,520

International Grammar School

ULTIMO

$24,850

$25,900

Loreto Normanhurst

NORMANHURST

$22,374

$25,335