Parenting Australia

Three ways to fund your children’s education

The start of the financial year is a great time to discuss financial goals and formulate plans to achieve them. One major expense that concerns many new parents is the high (and fast rising) cost of education. A study conducted by AMP in 2007 found that the cost of educating two children until the end of high school exceeded $60,000 in public schools and $260,000 for a private school education. The study also showed that the average cost of educating children increased by nearly 60% in the seven years to 2007. This is an increase of 250% above inflation.

Here are three tips to get you thinking about education funding:

1. Investment bonds
There are a number of investment bond products in the marketplace that allow you to save for specific life events such as education funding. These bonds are long term investments with a tax-paid investment structure where tax on any returns (income and capital growth) is paid internally in a similar way to superannuation products. The applicable tax rate is 30% but the effective tax rate is generally lower due to deductions and imputation credits that may be available.

After the bond has been held for ten years, it is personal and Capital Gains Tax (CGT) free. If you were to draw down within 10 years, you would be required to pay CGT on some or all of the gains.

The minimum investment amount is usually $5,000 and additional investments of up to 125% of previous year’s investment can be made annually.

2. Pre-pay your school fees
Over the past 15 years, private school fees have been increasing at nearly 7% per annum, which is well in excess of inflation. Some private schools offer fees in advance schemes, which can be paid up to 10 years in advance. Worries about fee increases and paying fees at the time of education are removed.

Early payment of fees earns you credits, which are not assessable for tax purposes. Either regular payments or one-off payments can be made.

3. Draw down on housing equity
Instead of making contributions to an investment bond, you could use an offset account or redraw facility and then redraw the amounts to pay for your children’s education. By doing so, you remove the investment risk. However, ready access means the funds may also be used for other purposes.

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James has enjoyed a successful career in the financial industry for more than 10 years. For the past five years he has been helping families, single parents, professionals and small businesses achieve their financial goals. James draws on his own experience and offers clients practical advice to assist them in planning for their future. When not at work, you'll find James spending time with his family or running along the coast between Coogee and Bondi.

James Randle | Financial Adviser
Phone: 02 8456 5333

 Mobile: 0414 669 835

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