Being a parent has many highs (and perhaps some irritations too), but one common issue is the amount of money Australian parents spend on their children. There are many costs associated with raising children including housing, food, clothing, recreation and education. For those planning on private school, this expense is often second only to mortgage costs. Planning ahead is the key and budgeted savings can be the answer.
The cost of education alone has been increasing by around 7% per annum for the last 10 years which is well ahead of the national inflation rate. Costs can vary between $1,000 per annum for a government secondary school education to $40,000 plus for a child in a private school boarding house. Importantly, these figures include not only fees but also allowances for uniforms, transport, computers and extra curricular activities. The resulting financial pressures can add stress to families and their budgets
A simple solution – savings accounts
Investment options range from a simple savings account with a bank or credit union – be sure to seek advice about the best account to avoid tax head-aches. A regular automated savings plan that adds to the account will be required. Look for an account with high interest that’s designed for long terms savings as you shouldn’t be using this account on a daily or weekly basis.
Tax effective and flexible – investment bonds
Another alternative is an Investment Bond that offers a number of tax advantages over ordinary savings accounts. It is estimated that in excess of $100 million each year is invested in bonds by Australian parents for future education expenses.
KeyInvest has offered these Bonds for a number of years as they’ve maintained their popularity because KeyInvest pays tax out of the earnings of the bond, so there is usually no need to pay any personal tax. Lower taxable income can also help maximise any family tax benefits you might be eligible to receive.
By investing $2,000 up front and 200 per month for 10 years, you would save enough to fund 6 years of secondary school at $6,000 p.a. Like all good long term savings plans, time and regular investments are the key.
Using home equity
An increasing trend is to draw-down on available equity in the family home. Whilst this does free up cash for education expenses the home-owner is left with an increased mortgage which of course attracts interest repayments. Again, ensuring any draw-down is structured in the best way possible you should consult your financial institution of financial planner.
The most important decision you make, however, could be just to start saving as time and regular investments are the key to getting ahead for an expense such as education.
For more information speak to your financial adviser or contact KeyInvest on (8213 1100) or click here
This newsletter is provided for general information only. Please do not rely on this newsletter as a substitute for specific legal or financial advice. Before making any decisions you should consider your specific objectives, financial situation and needs. To obtain the relevant Product Disclosure Statement or any other offer document from KeyInvest Ltd (ASFL No. 240667) please call 1300 658 904