Saving for your kids' education

Like all parents, you want to offer your children the best start in life, and a good education is a fundamental part of that. Unfortunately, according to the Australian Consumers’ Association*, the cost of education is one of the fastest-growing ‘life costs’ in Australia, increasing around 4–7% per year.

Some high school fees can be over $15,000 a year, but fees are not the only expense you’ll face. Whether you’re planning to send your children to private or public school, or on to tertiary education, you can expect to pay extra for uniforms, excursions, books, instruments, computers and internet access, among other things.

So it’s clear that the sooner you start saving, the better. But what’s the best way to do it?

There are a number of options available, from simple savings accounts to investments in managed funds and shares. Which one you choose will depend on your own situation, and your investing experience — we’ve given a broad overview of what each option offers.

Top 5 tips

1.       Education savings plans. There are a number of specific education savings plans available. These are usually set up to offer certain tax advantages, and you may be able to choose from several investment approaches. It’s important with education savings plans to read the fine print, and make sure that they offer the flexibility for you to withdraw funds if you need them for other purposes. Find out more about our Education Savings Plan.

2.       High interest savings accounts. These accounts are a straightforward, flexible way to save money. Minimum investments tend to be very low — so you can start any time — and you can add to your savings whenever it suits you. However, they may not be the most tax-effective way to save if you are on a higher marginal tax rate.

3.       Shares and managed funds. Shares and managed funds can be an effective investment, particularly if you have a longer investment time-frame. If you’d like to invest in shares, but aren’t sure about setting up a portfolio you could consider a CommSec Share Pack that matches your investment goals. These can be a cost-effective way to invest on behalf of your family.

4.       Use your flexible mortgage. If you have a mortgage which offers you the flexibility to make additional repayments when you have the funds, you can use this to help with school fees. Pay extra off your mortgage when you can, using lump sums or a regular extra contribution, and then draw back down on it when you need to pay school fees. This can cost less than borrowing the money for the fees.

5.       Holding investments in the right name. An important thing to keep in mind for all of these options is holding the investments in the right name. Investing in the name of the child you’re saving for may not be the right choice; the rules around taxation of children’s income are designed to stop adults using children as a way of reducing their own taxable income. It may be more effective to make the investment in the name of the adult in the lowest marginal tax bracket. You should talk to your financial adviser before making any decision.

 

*www.choice.com.au

Important information

This information does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of this information in relation to your own situation before acting on it. Commonwealth Bank of Australia ABN 48 123 123 124.