Impact of education costs should be considered in financial plans
There is increasing recognition by the Federal government that Australian families need assistance in meeting the costs associated with their children’s education, but people should not assume that the government help will make up the shortfall between what they can afford to pay, and what education actually costs.
Factoring into a financial strategy the costs associated with education is a sensible approach for anyone with children.
According to analysis by Lifeplan Funds Management, over the last 15 years, education costs have risen 120 percent, compared to just 47 percent for headline inflation figures.
The latest Consumer Price Index (CPI) figures, show that education costs in the last year alone have risen by 5.7 percent (tertiary education 5.9 percent; secondary education 5.7 percent; and preschool and primary education 5.1 percent).
This increase is beaten only by alcohol and tobacco (8.7 percent) and – just – by housing (5.8 percent).
This continued erosion of education affordability is something that most people won’t have considered when looking at their financial plans. Year after year, the cost to families of educating their children has outpaced overall inflation as well as wages growth.
Yet the steps are simple – there are specific plans available to save for education that can be tailored to suit individual needs.
Every Australian family should consider its own education savings plan. Now is an opportune time to consider an investment fund for education. Asset prices are low, meaning a small upfront investment goes a long way over the long term. And an education fund also allows other family members, such as grandparents, to contribute to future education expenses. Please contact our HTA Financial Adviser, Scott Millson on 03 9810 3666, or discuss with us further if you would like some more information.
Scott’s top tips for saving for your child’s education
All parents would agree that a good education is one of the best investments they can make in their child’s future. However, few put in place a plan to help ensure that they can provide that education.
Starting up an education savings plan doesn’t require major financial sacrifices. A few simple steps will help ensure there are funds available when needed to pay for those extra bits and pieces – such as text books, sport equipment, musical instruments, and even travel costs or extra tuition.
Our HTA Financial Adviser, Scott Millson, has some useful “Do’s and Don’ts” for parents who would like to start saving for their child’s education:
- Identify achievable and realistic goals. For example, work out how much textbooks will cost through high school, and aim to save the money to pay for them while the child is still in primary school. Parents are more likely to stick to their plan if they have a defined goal in mind.
- Pass on any pay rises on an after-tax basis straight into the education fund before it is absorbed into normal expenditure. Also consider investing any windfall gains such as tax-returns or bonuses – they are unlikely to be missed but will make a big difference to the savings plan.
- Encourage other family members such as grandparents to give birthday and Christmas “education” gifts, spending less on toys for their grandchildren (or nieces and nephews) and instead investing in their future. For example, instead of buying a $100 toy for a birthday present, spend $50 on the toy and put $50 into the education fund. The toy may end up in the recycling bin in six months but the $50 deposit will buy a number of text books in 12 years time!
- Maintain a long term view and invest in funds with growth potential. Most education savings plans have a time frame of greater than 10 years, so let the compounding growth of investment markets do some of the heavy lifting.
- Look for funds that provide extra tax benefits. For example, friendly societies such as Lifeplan can offer attractive tax-advantaged plans which over time will make a big difference to the amount saved. These plans allow a special tax refund on education expenses claimed from earnings by the fund which are passed on to the investor and student.
- Try to save enough money to pay for everything. It’s unlikely that parents will be able to save hundreds of thousands of dollars. Instead, think about it as a nest egg that will help absorb education costs, not pay for the whole education.
- Only think that sizeable deposits are worthwhile. Lots of affordable amounts over time will add up, and small but regular contributions are more likely to see goals realised and that big deposits are made when parents feel they can afford it.
- Leave it on the “to do” list. Start saving as soon as possible – ideally, as soon as the baby is born. For instance, use the government’s baby bonus to kick-start the investment.
Finally, Scott says that it’s important for parents to keep their eye on the big picture. ‘Your over-riding aim is to provide your children with the best education possible, one that will help them achieve their goals in life. While it will be tempting at times to buy your children the latest toy just because every other child in the classroom has it, or to help them buy their first car or go on an overseas holiday, remember that an education is far more valuable’.
If you'd like further information on financial planning, please contact us at HTA Advisory.
*Scott Millson is an authorised representative of Australian Unity Personal Financial Services (AFSL 234459)