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Weighing up the question of whether to send your young family to public or private schools for their primary and secondary years? Working out how to cover the added costs, if you opt out of the state system, is a critical question for many Australian households.
Research carried out by the Australian Scholarships Group estimates that for a child born in 2017, the cost of a state school education from prep to year 12 in metropolitan Queensland is approximately $60,000 per child.1 Enrol your 2017-born offspring in the systemic (for example, Catholic) system, and the estimated total bill is almost $244,000. Those who opt for an independent school education may have to dig even deeper, with $372,000 per child the estimated average outlay.
The figures were based on a survey of more than 5,600 respondents. The survey asked parents to estimate the costs associated with tuition fees and levies (including voluntary contributions), extracurricular activities, clothing, necessities such as books and stationery, travel expenses and computer costs (including internet) that they paid for their children in preschool, primary, or secondary schooling at government, systemic, and private centres and schools.
Meeting these costs can be a significant challenge. So how might you go about putting away some, or all, of the money before the big bills begin rolling in? Three options include:
Opening a high interest savings account or term deposit can be a reasonably simple way to cordon off savings on a regular basis, ideally via a regular transfer at payday so the cash is deposited before it’s missed. You can find savings accounts that are free to set up and that don’t incur ongoing account keeping fees. It’s also generally easy to access the money if your circumstances change or some pressing need arises. On the downside, your savings may not be working as hard as they could be in other investment vehicles, particularly in today’s climate of low interest rates. You’ll also take a hit at financial year’s end, paying your marginal tax rate on the return you’ve earned.
The stock market and managed funds can offer significantly higher returns, in the form of dividends and capital gains, than cash in the bank. But higher returns can also mean higher risks. There’s the chance your education nest egg could shrink rather than grow if the market crashes or some of your shares prove to be poor performers.
Adding to your stash incrementally may also be difficult. While it is possible to invest modest amounts regularly in managed funds, the brokerage costs associated with buying small parcels of shares can make them an uneconomic proposition.
If you choose to invest your school savings this way, it’s important to have time on your side. This may enable you to weather the ups and downs of a volatile market and you may be able to pick the optimum times to cash out.
Available from some banks and financial institutions, investment or education bonds can be a tax effective vehicle for parents in higher tax brackets who start saving early and are able to make regular contributions.
Most bonds offer a range of investment options with varying degrees of risk. Earnings do not form part of the bond holder’s taxable income and are reinvested, after tax is deducted at 30%. You can withdraw your funds from a bond at any time but doing so within the first 10 years may see you incur additional tax at your marginal rate on some, or all, of the investment. However, if you make regular contributions and no withdrawals for 10 years or longer, all returns on the investment may be treated as tax free.
Investment bonds can attract ongoing fees, so it’s important to check all terms and conditions carefully.
Want to talk through your options for putting aside money for school fees before they come due? QSuper members can access QInvest2, which can provide guidance and personalised advice for individuals and families looking to establish an education savings plan.
For more information, or to speak to one of QInvest’s team of qualified advisers, contact us on 1800 643 893 or visit qinvest.com.au
1 Australian Scholarships Group; ASG’s Education Costs Estimates; 2017.
2 QInvest Limited (ABN 35 063 511 580 AFSL 238274) (QInvest) is ultimately owned by the QSuper Board (ABN 32 125 059 006 AFSL 489650) as trustee for QSuper (ABN 60 905 115 063). QInvest is a separate legal entity responsible for the financial services it provides. Advice fees may apply.
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