Here are answers to every question you might have regarding Children Education Funds. Bonus: Tips to help you plan like a professional!
There’s no denying the fact that you want your children’s future to be secured and hassle-free, don’t you? At first, it is all about you but after having kids everything changes. Everything circles around your little prince/princess. Education is important and often very expensive. In recent years, the cost of university education around the world has increased to a point where parents can no longer afford to pay for it without a financial plan implemented years in advance. Modern smart parents find their ways to secure their children’s future by doing everything from saving, buying insurance plans, investing in businesses, and to the least opening a children education fund. But, why is it important to plan anything in the first place?
Let’s study step by step on this!
Few things about Education Expenses
Educating your child is not cheap. Let us look at a few reports on the children education issue. We will be focusing on Australia here. Quick stats on the cost of raising a child in Australia:
- The average cost of raising a child from birth to seventeen years of age is over $297,600
- ‘long-day’ childcare can cost up to $192 a day
- Schooling costs can be as much as $66,000 through the public school system and up to $475,000 through a private school
- 4% of 20-24-year-olds and 17% of 25-29-year-olds continue to live in their parents’ home (Go here for more)
Research showed that the overall private education cost in Australia increased by about 61% while the wage only had a 34% growth in the last decade. (Ref)
The cost of a 4-year local degree programme maybe about $60,000 today. However, this is in today’s money and if one thing is for certain, it is that inflation is going to make tertiary education even more expensive in the future. Even with a conservative estimate of a 2% inflation rate each year, we are still looking at a projected figure of $89,000, or nearly 50% higher, in 20 years’ time.
So, while planning for your child’s education, do not forget to factor inflation into your calculation.
Why save for education?
Before going to the exact issue, let’s look at a Research result carried out in Hong Kong.
“33% of parents have had disputes with their spouses over their children’s education, mainly with regard to the selection of schools and the need to enrol in extra tutorial classes.”
Q.1 Have you ever argued with your spouse over your children’s education?
Q.2 What aspect of your children’s education do you and your spouse disagree on?
I believe you can understand why I brought this up here first. So, let’s move on to the “WHY” issue.
1. You want your child to succeed
There are hundreds of career options available nowadays; more are still to come. Just think back a decade or two – data scientists, search engine optimizers and social media lawyers didn’t feature on the “options to study” list and yet today they are sought after skills! What’s even better is that training for their preferred career choice is not limited to universities. To put it simply, your children’s success and their future is a mystery that you are trying to back up!
2. The Cost of Education
Costs of education are not limited to tuition fees rather it includes arrays of elements like Textbooks, Uniforms, Personal tutors, Learning materials, Learning equipment and so many other things. Wouldn’t it be wise to keep a backup for them as well?
3. Bridging Education Gap
Bridging the education gap is the establishment of the plan for children education. As a parent when you have sufficient funds for your children to go higher study you fill up the gap between education and your children.
4. To get better School/Colleges
Getting into a better school or college is what every parent wants in society. But with the increased competition in today’s education, there are many parents who are unable to give the right choice of institution for their children. This is the main drawback in our society for people who belong to poor families and middle-class families.
5. Financial relief
Making the right investment plan for your children is the way of getting relief from financial status. As we all know education requires a huge amount of funds, is therefore early investment or saving is the key to reducing the burden of being financial life.
6. National development
Education plays an important role in national development. As such children are the future of tomorrow, they must be given the right to education and the right to study higher.
7. Soaring costs of overseas studies
University graduation has become parents’ basic expectation for children’s education. And many want their children to study abroad. Studying overseas just adds a few more checklist points for extra expenses.
8. Extra-curricular expenses
You shouldn’t overlook the fact that extra-curricular expenses that come along with the education during your children’s upbringing. School trips, vacations, supporting their hobbies and whatnots are also matters to consider seriously.
If you are now convinced that saving for children’s education is essential then let’s talk about what are your options to do that.
To help you reach your goal, you could put your savings into:
- Managed funds
- Term deposits
- Savings accounts
- Investment bonds
- Education funds
You may choose any of these but we will discuss children education funds today. (Obvious from the Article heading, isn’t it?) Education funds are special funds to help save for children’s education. Most banks or financial institutes have a set of terms that help ensure your children’s future. They even have other benefits added to children education funds that will aid you to maximise your overall financial health besides saving for your child’s future. Generally, saving plans provide a choice of investment options with varying levels of risk and return potential. Scholarship plans also have unique tax features that are not generally available to other savings and investment products. There are pros and cons for each savings strategy depending on your personal objectives, financial circumstances and needs. (reference)
Here are some questions to ask before you invest in an education fund. Who can contribute– How much do you need to invest and how often do you need to contribute? Can other people, such as grandparents, also contribute?
Investment options – What investment options are available, and do the suggested timeframes for these options meet the timing of your children’s education needs?
The margin of returns– Since your objective is savings, getting a good return should be your biggest consideration. All five plans provide projected returns of more than 3.5%, which is a good return for endowment plans.
Flexibility– Think about whether you would like to have the option of small payouts at significant milestones in your child’s education journey to reward him/her with vacations or gifts. You may want these small payouts only closer to the University years.
Fees – What fees will you be charged? It varies from provider to provider. Choose whichever suits your Expenditure plan.
Fund purchases options – What can you use the savings for, for example, can you use them for primary, high school or tertiary studies? Do they cover expenses such as clothing, laptops and excursions?
Criteria to access the fund – What criteria need to be met before you can access your funds? What happens if your circumstances change, and you can no longer contribute to the fund – do you lose all that you have invested? How difficult it is to withdraw your money if your children’s priorities change?
These are the basic questions to ask before choosing a provider. If you opt-out for other saving options then you should compare the features of an education fund with other investments such as term deposits and managed funds.
In particular compare: Product fees, features and benefits
How the fund is taxed compared to how other investments are taxed.
Now, it’s time for 10 awesome tips to plan your fund strategy like a professional!
Tip 1: Decide How Much to Save
How much money you need will depend on whether you want your children to go to public or private schools and whether they plan to go to university or college.
For example, if you send two kids to a private high school which costs an average of $20,000 a year for each child, by the time they both graduate you will have spent $240,000 on school fees. And that’s not counting extras such as school uniforms, trips and sporting clinics. Public schools are much cheaper but there are still extra tuition fees, textbooks, uniforms and school camps to pay for.
Check out Education Savings Calculator to be more specific.
Tip 2: Start Early
If you are carrying a toddler in your arms and reading this, please do not be disappointed that you would have to pay an additional $10,000 just because she’s enrolling into university 5 years later than another child.
In fact, it’s an advantage since you have a longer runway to save up for your children’s university education! Looking at the table above, if you have 15 years to save $60,000, you only need to save $4,000 a year as compared to another parent who has to save $5,000 a year if the child is older.
Tip 3: Cut down on unnecessary expenses
Do not overlook the power of small savings. You would be astonished to learn that people actually spent more than a hundred bucks on discretionary items ranging from eating out and mobile phone accessories to coffee and snacks. So, be thoughtful about where you are spending your money. $100 saved in a week will give a quite significant boost to your children’s education fund.
Tip 4: Invest For Higher Returns
What if I told you that you don’t even need to save $4,000 a year to sponsor a child’s university expenses?! In fact, $3,000 might just suffice. That’s just $250 a month and less than $10 a day. If you are able to achieve a 5 per cent annual return on the amount of money that you have kept aside as university education funds, saving $3,000 a year would result in a portfolio worth $65,000 at the end of 15 years. So, compare products and consider high returning policies.
Tip 5: Endowment Plan
Endowment policies are suitable for parents who do not prefer to take too much risk and yet want better returns than what the banks provide. There are now endowment plans specifically designed for children’s education, which spread the maturity payout over the University years instead of just providing a lump sum at the end of the policy.
The following diagram gives a sample of how much one would need to save in the endowment plan for a child entering University in the next 5, 10, 15 and 20 years. Clearly, the more time you have to save for your child’s education, the less you need to save every month. It pays to start early.
With a high likelihood of a 3 per cent overall annual return, saving $300 per month should help ensure a policy value of at least $60,000 when the policy matures in 15 years’ time.
Tip 6: Use your Bonuses
Saving for your child’s university education will be made a lot easier if you sock away a portion of your bonuses. IT will help greatly, trust me!
Tip 7: Take advantage of any government support
Many Governments around the world provide great support to raise your children or aid their education expenses. Take full advantage of government support as an extra to your savings plan.
Tip 8: Set up a trust
A trust, a legal agreement where money is transferred from one person to another according to specific terms, is a good way to “manage, control and protect funds” because it gives a parent – or grandparent – the peace of mind of knowing that the money will be used for its intended purpose.
Tip 9: Adjust your portfolio
Portfolio management is particularly important when you are planning towards expenditures that have fixed timelines. It could be saving towards a wedding, a home renovation or in this case, planning your child’s future education.
Since you have visibility of when you would require the money, you have to ensure that the money is protected as the date draws near. You cannot afford a situation where 50% of your portfolio gets wiped out due to an unpredictable economic crisis just before your child needs the money to enrol into tertiary education.
Tip 10: Save & invest based on what you are comfortable with
Saving and investing in your child’s future education is a long-term plan that you need to be comfortable with. Choose the best plan that syncs well with you and your financial plan. Choose your insurance provider wisely. The insurance company must not only be known in the industry but is also legitimate, reliable, and capable of meeting your demands.
Valuable tip: Talk to your children about saving
Let your children know your savings plan. It’s important they understand the benefit of long-term saving. You could even open a savings account and teach them to deposit their pocket money in it. Learn the importance of teaching your children about money here. After that, don’t forget to learn how to teach kids about money here.
We sincerely hope that you find the best option to save for your children’s future and we believe this article at least has given you a few positive perspectives.
Don’t have time to do research by yourself? No worries! Here’s the link for one of the best Children Education Funds available now in Australia.