01.Children's education saving options
Saving to pay for your baby’s education is similar to any other long-term savings goal. It can be as simple as putting a few dollars a week into a high-interest savings account or as complex as developing a portfolio of shares.
What to save for
Education and extracurricular activities can be expensive. You're likely to need to pay for school fees, uniforms, excursions, books, transport, lunches, musical instruments, tuition, internet access and home computers.
Tertiary costs can include accommodation, transport, clothing, groceries and, of course, university or TAFE fees.
There’s no way of calculating exactly how much it costs to educate a child. It will depend mainly on the type of schools they attend. Figures can exceed more than $15,000 per year (in current dollars) for a 13 to 18 year old.
- Investing in a high-interest savings account, shares or managed funds is one option for saving for your child's education. Generally, it's not the most tax-effective strategy, but may offer flexibility and investment choice.
Investment bonds (offered by a range of companies) can be a tax-effective way to save for education. You need to hold an investment bond for 10 years to take advantage of the full tax benefits. Read the product disclosure statements carefully before making your choice.
Education-specific managed investments are tax effective. Carefully read each company’s product disclosure statement before investing and check if they’re flexible enough for your needs. For example, what happens if your child decides not to take up tertiary studies? Can you get the money out?
Paying back the mortgage to 'save' for your children's education can be an excellent strategy. It's tax effective and available to pretty much all home owners. Use a separate offset account or redraw facility where you keep extra mortgage repayments. You can then redraw the amounts to pay for your child’s education. But you need to be very disciplined, stick to your savings plan and make sure you don’t use the money for other things.
For more investment advice, see the full CHOICE report on Saving for your kids' education.