Investing in your child's future
With the cost of education rising faster than inflation, are you in a position to comfortably fund your children's future?
There is no doubt that the returns, both financial and social, from having a good education are enormous. Quality schooling at the high school level combined with tertiary study is one of the most powerful ways to ensure that your child has the best start to life.
Having the finances to achieve these goals can be challenging for many families, particularly when the cost of private school fees can average up to $20,000 per year for each child. This figure doesn’t include additional costs for laptops, mobile phones, transport or sporting equipment. The hidden costs associated with having teenage children should also not be overlooked. These include day-to-day activities such as taking them to and from school and recreational activities such as dance lessons or trips to the movies.
If your child then chooses to go to university, the average cost for a Bachelor degree is around $20,000.¹ Even if your child’s tertiary study is funded through Government supported schemes such as HECS-HELP, you may still want to assist financially by contributing to living costs like rent, groceries or transport.
Plus, if your child chooses to stay at home while studying at uni, these costs also need to be taken into account when budgeting. According to a report by the National Centre for Social and Economic Modelling for AMP in late 2008, one third of uni students in Australia live with and are dependant on their parents. This trend of children staying at home for longer is likely to continue as more young people study full time and marry later. AMP’s research suggests that those children aged between 18 and 24 are the most expensive to support, with the average costing as much as $555 per week.²
The sooner you start, the better
For most parents, careful budgeting is required in order to comfortably meet the bulk of their children’s education expenses. Like any long-term goal, the sooner you set up a regular savings plan, the easier and less stressful it is on your cash flow and family budget.
Starting early gives you the benefits of compound returns on your savings. This means you earn interest on your interest so you can grow your savings faster. Plus, you’ll be able to take a more long-term view and invest in growth assets like shares and managed funds. This is opposed to using cash accounts—while they are highly accessible, they generally do not offer high returns or the opportunity for capital growth.
Many parents choose to register any investments earmarked for their children’s education costs in their own name. One recommended option is buying them in the name of the parent with the lowest tax rate so that you can minimise your tax on any investment earnings. If you choose to invest directly in your child's name and the investment earnings exceeds the tax-free limit for minors ($3,000 for the 2009/10 financial year), this income will be hit with a high tax rate. You will also lose control of the funds, so once your child is 18, it may be challenging to convince him or her to use these savings to pay for uni fees instead of a trip overseas.
Borrowing, particularly for high school fees, is not an ideal strategy as you can end up paying nearly double the actual cost of the education fees. It is much better to save the money required each year so you’re not dipping into everyday savings or relying on your weekly earnings.
Visit www.amp.com.au/costofeducation today and use AMP’s Cost of Education calculator to find out how much you need to start setting aside for your child’s future.
1. Source: What price the clever country, AMP.Natsem income and wealth contact details, you can find them on your Plan summary. report 21, 2008.
2. Source: Honey I calculated the kids, AMP.Natsem income and wealth. report 18, 2008.
What you need to know
This article contains general information only. It does not take into account your objectives, financial situation or needs. Please consider the appropriateness of the information in light of your personal circumstances. Although the information in this article was obtained from sources considered to be reliable, the information is not guaranteed to be accurate or complete. The information in this article is current as at June 2009 and may change over time.
