by Sophie Cross
Not saving for your child's education? You're not alone, but what are you waiting for?
Costs for education are currently rising by around 5% annually and childcare by 17.6% a year*. The Australian Consumers Association recently calculated that the average cost of full-time child care per week is $120. If a child has out-of-home care from the baby stage to when he/she starts school parents will have paid $30,000 and if the same child attended a private school from kindergarten to year 12, it could add another $250,000 to the bill!
Generally speaking high school children will cost around $4,000 per year per child at a public school including fees, lunches, uniform, music lessons or other extra curricular activities. At an independent school this rises to $15,000 per year. If your child wants to go to university you’re looking at another $50,000 on top of that.
Little wonder couples are choosing to wait until they are older and more financially secure before considering babies. The first year alone is frightening enough: Pre, during and postnatal care, childcare, injections, baby basics like a decent cot and stroller now set you back around $1,000.
Educating your baby might seem like a long way off, but as waiting lists for pre-school, kindergarten and junior school need to be addressed pretty much the day you discover you’re pregnant, it really isn’t that far away.
Best to consider saving before you’re pregnant. Hell, just forget socializing through your twenties and put everything you would have spent on having a good time into a savings account. Have a baby at 30 and you might have enough to see you through! But if you don’t socialize, how will you meet your partner in order to have a baby in the first place?
Unfortunately, it's a very real and serious consideration that the majority of us prefer to ignore until our kids are already hitting school age and the reality hits. Most people are still struggling to pay the mortgage during their children’s early years, so additional saving capacity is minimal.
I asked a few friends how they were saving for their children’s education and, if they were, which means they were using. The following responses were fairly typical:
Ian (4 children from 3 ½ to 13 years): “No, we’re not saving. We tend to rattle every tin in the kitchen hoping to find some money once a term.”
Adriana (baby aged 2 years): “Oh god - you've made me feel very guilty! Haven't really thought about it – we’re just focusing on our mortgage at the moment - somehow we will do it!!”
Kirsten (baby aged 20 months): “We started off with best intentions and the topic of conversation often arises at home. When I got paid a lump sum bonus from work, we bought a small share portfolio of blue chip shares, all of which have unfortunately dropped in value since we purchased! We haven't done anything since”.
Rosalind (baby aged 20 months): “We are just paying off as much of the mortgage as fast as possible to free up cash for private school in the future. No special plan other than that. I am scared though…”
Claudia (son, aged 10). ‘I have not been as organised as many other parents I know, with a savings plan set aside. But to be honest, I’m starting to realise I need to look at something as Private School bills are a bit of a shock”.
There are a few options to consider if you do want to start saving NOW…and let’s face it, you probably should:
1. The baby announcement account. If you’re not pregnant yet or have just found out this is for you. Similar to a wedding list, with no items of cutlery etc. Firstly open a high interest savings account at your local bank. Then make the big announcement, requesting that any potential godparents, grandparents, other kindly aunties and uncles and friends (who are more flushed or don’t have their own children!) wishing to give a pressie, instead make a donation to the baby’s education fund. They can even set up a standing order if they like. Just add the account details to your announcement card/email etc with the scan piccies.
2. The piggy bank or kitchen tin. A very popular choice and a handy way to use all that loose change hanging around the house. Simply empty your pockets and wallet on a daily basis and anything that’s silver goes into the piggy bank. You’ll be amazed how much you accumulate every week and can deposit into the baby’s education fund. It’s also a great way to get really fast at sorting coins which you probably used to love watching the bank tellers do as a child!
3. Monthly garage sale. Just think how much stuff you’re going to be accumulating with children entering your life. And they grow out of clothes and toys at a frightening rate, so a monthly garage sale will:
- Un-clutter your house, getting rid of all those discarded baby/children’s items (and your own rubbish too);
- Provide funds for the child’s education!
4. The Savings Account. This is a low risk option but saving takes time, even with some of the higher rate accounts (which are less flexible in terms of accessing money at short notice). If your piggy bank collections, garage sales and baby announcement prove fruitful and you have an initial investment of around $1000, depositing $250 per month thereafter, you could have earned around $25,000 by the time your child starts school (at 7).
5. Education Savings Plans and Education Funds: These are special savings plans offered by the Commonwealth Bank, ‘friendly societies’ such as Australian Unity, the Australian Scholarships Group and fund management companies. They operate as managed funds and could help you fund your child through primary, secondary and even tertiary education. The advantage of these is that they are classified as 'scholarship plans' under tax laws, which allow some tax advantages not generally available in other savings and investment alternatives. There may be minimum monthly or lump sum contributions to some plans, so your garage sale and piggy bank might need to supply around $100 per month or $500 for a lump sum. You may also need around $1,000 to open a plan.
6. Stocks and Shares. Very risky if values fall and must be seen as a long term investment, though of course with any high risk, rewards can also be high.
7. Property Investment. Despite the supposed crash in the property market, using spare cash for property investment in the right place can still provide some hefty profits and potentially fund your child’s entire education, but you have to know what you’re doing and be informed on the best areas and types of property to buy.
8. Mortgage Options. It might be an idea to use an offset account for additional savings or work out a way to pay off your mortgage sooner and release some savings potential in a few years time. Talk to your mortgage lender about your options.
Whichever way you look at it, one of the most important things you can give your child is a good education. So get your head out of the sand and start saving!