Most parents believe a good education is an investment in their child’s future, but finding a way to fund that investment can be daunting.
ANZ Bank says that sending children to private school is the second-biggest financial concern for parents, behind ensuring quality healthy food is on the table, so its obviously a top priority for parents.
According to the Australian Scholarships Group Friendly Society, the total cost of sending a child born in 2015 to private school from kindergarten through to year 12 is $456,933. That’s a national average. You will pay more in Sydney and Melbourne, but less elsewhere.
Ways to save
Your mortgage
Using the redraw or offset account attached to your home loan is a simple solution. Even when interest rates are low, as they are now, any savings you park in your mortgage earn an effective after-tax return equal to your home loan interest rate.
Investment portfolio
Parents with a longer time frame might consider investing in managed funds. The easiest way to build a diversified portfolio of assets including exposure to local and international shares, property, fixed interest and cash is via managed funds. Some managed funds even allow you to set up a regular savings plan.
Insurance bonds
Insurance bonds can be a tax-effective choice, especially for parents on higher incomes with a time horizon of at least 10 years. Rather than hold investments in your own name where earnings may push you into a higher tax bracket, investment earnings from insurance bonds are taxed inside the bond at the corporate rate of 30 per cent. This means you don’t need to account for them in your annual tax return.
And grandparents can invest in the bonds without affecting their pension entitlements. Insurance bonds can also be transferred to the kids at any time with no capital gains tax.
Education savings plans
Specialist education funds allow you to make regular payments or a one-off lump sum. There are funds designed for primary, secondary and post-secondary education.
As these funds are registered as educational scholarship plans they attract tax benefits that are passed on to families.
While the cost of private school education can seem prohibitive, many parents save money by sending their children to local, public primary schools before going private for their secondary education.
Whatever school you choose, the sooner you begin a savings plan the easier it will be on your household budget.