Education can be a costly lesson for people who don’t plan
Educating your children is a major expense — the sooner you start saving for it the better. 
We all know prices are rising; compare the cost of your shopping trolley now to a couple of years ago. But which part of the Consumer Price Index do you think had the highest growth last year? According to the Australian Bureau of Statistics, education topped the list at 5.6 per cent. The CPI rose only 2.1
per cent for the same period.
So it’s little wonder that more people are nominating education as
part of their savings goals. Wanting the best in life for your
children and grandchildren is natural, and a good education can
create the base for a successful career and financial stability.
Whether it’s the public or private school system that will provide
that base, it’s likely the costs associated with education will keep
increasing.
The total cost for a year at primary school can be anywhere
between $5,000 for government schools and $13,500 for private
schools, according to 2010 estimates by the Australian
Scholarships Group (ASG).
These costs include uniforms, extra fees for music, sport or dance lessons, school camps and excursions, and computer and internet access. For senior school, the costs can be as much as $20,000 per year.
For a child born this year, ASG estimates the total cost for a
public school education (from preschool to Year 12) will be
$110,000 while a private school education will cost around
$430,000.*
Only 40 percent of parents and grandparents are saving for education in advance but almost all admit that their savings fall short, with half of the savers putting aside less than $100 a month or $1200 a year.
Having the money available when children start school is a better option than borrowing to pay school fees. Paying interest on the borrowings can sometimes double the amount you would pay if you had saved the money.
A decade of debt and the current low wages growth makes it difficult for families to meet their children’s education costs. The reality is that it’s education that is becoming the least
affordable,”
Tax breaks for education
“Given the economic environment, it’s not surprising that families are cutting down on expenses, but education is not considered a
luxury and it’s important to avail yourself of an important tax break that the government allows for Education Savings Plans (ESPs) to boost your earnings,
An ESP is an investment fund that is able to claim a tax credit if
the funds are used for educational purposes. Some people think they’ll borrow against any equity in their homes to pay school fees but that can be risky and impractical
“Families need a separate investment, quarantined from other
assets, to bridge the major gap between what they aspire to
achieve, with regard to their kids’ education, and their ability to
finance it.”
Education saving plans
A tax-effective way to save that encourages the discipline of regular saving and not spending. The downside is that education saving plans have relatively high fees, particularly for conservative investment options. Also, you must find out what happens to your investment earnings if you withdraw your investment early. Some plans will not pay you any gains.
Education saving plans offer a rare tax advantage. The government does not like to give tax concessions unless it is going to encourage people to save for retirement through superannuation or a child's education through an education saving plan.
Two friendly societies that the tax office allows to rebate all the tax paid on investment earnings at the maturity of the "scholarship plan" are Lifeplan and the Australian Scholarship Group (ASG). The tax benefits vary from plan to plan and are complicated.
Managed funds
If you like regular saving plans, why not try other plans with lower fees? Exchange Traded Funds are listed index funds with fees around 0.28 percent, or Vanguard's diversified balanced funds charge a fee of 0.9 percent. After all, they invest in similar sorts of investments to education plans.
If you choose a diversified fund with investments in fixed interest, cash, property and shares, you can spread your risk and take advantage of long-term growth investments such as property and shares.
Most managed funds do not allow investments to be held in a child's name, but generally they will accept applications if an adult acts as trustee for the child and the trustee provides their own tax file number. Direct shares are also attractive investments for children but, again, the investment may need to be held in the name of a trustee.
Instead of giving their children the extra money and hoping it
won’t be spent on a holiday or new car, grandparents are more
likely to choose an ESP, which is specifically designed to make
the most of the tax benefits available when saving for education.
If you’re thinking of using an ESP, it is important to go through
your options with a financial planner. Be aware that some ESPs
may attract penalties if the investment is not used entirely for
education purposes. Whatever method you decide is best for you, the rising costs show it can never be too soon to turn your plans into action.
Breakout
For more information about Education Savings Plans go to
www.commbank.com.au/personal/youth-students/
More LINKS
Australian Scholarships Group - Save for your child's future education costs, enrol them into an ASG education scholarship fund today.
www.asg.com.au/
Provided the proceeds of an education savings plan are used to fund eligible education expenses, generally no further tax is payable upon withdrawal. ...
www.2020directinvest.com.au/...education/education-savings-plans.aspx
