Saving for your children's education

01.Your options

Saving to pay for your children’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 you’ll need

You’ll need to have funds available for school fees, uniforms, excursions, books, transport, lunches, musical instruments, tuition, internet access and home computers. Tertiary costs include accommodation, transport, clothing, groceries and, of course, university or TAFE fees.

The cost of education is one of the fastest growing life costs in the Australian community, growing at around 4 to 7% a year.

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 but figures can range up to more than $15,000 per year (in current dollars) for a 13 to 18 year old.

When planning to save for your child's education, it can be hard to know where to start. In the following pages we've looked at some of your major options, and what to consider when reviewing them. As well as the tax treatment of any earnings, you need to consider things like the nature of the underlying investments, the level of risk they carry and the likely level of returns that you will receive.

What are the options?

Your main options are:

• Pay down your mortgage   
• Online savings accounts, shares and managed funds
• Investment bonds  
• Education savings plans  

Other options

• Family trusts
  Trusts are a complex area and you should get specialist taxation, legal and financial advice before establishing one. There are administration costs but a family trust can help you to legitimately distribute investment income and take advantage of lower marginal tax rates for certain members of the family.
• Extra into super
  Grandparents or older parents can think about taking advantage of tax benefits of paying extra into their super. But make sure the money can be accessed when it is needed. Usually you can only access your super when you’ve reached retirement age.
• Salary packaging
  If available to you, your employer pays the school fees upfront and then deducts regular amounts from your gross income to recover the cost so it’s effectively a fee-and interest-free loan that lowers your taxable income. Such an arrangement spreads the cost of school fees across the year. It can be subject to Fringe Benefits Tax so you should seek advice about whether it’s a tax-effective strategy.