Funding education costs for their children is a prospect that exercises the minds of many families, as the demands of modern society increasingly lead our younger generations into ‘services’ rather than ‘trades’ work; and the standard of education required as a minimum, constantly increases.
It is widely reported that the costs of raising children from birth until adulthood are very significant (by one recent survey, around $1,000,000 – at 2009 values – from birth to age 25). Obviously, the cost to individual families will vary significantly depending on a range of variables, including the financial resources available, the lifestyle adopted by the family and the number of children in the family.
For most families the basics are core to these costs: providing shelter, food and clothing for the children; and from there costs for health, entertainment, lifestyle items, holidays etc are added – some critical, some discretionary; and as we hear regularly on the media, education is both a high priority and a high demand on family budgets.
Whilst the majority of the relevant costs are funded from recurrent income managed through careful and disciplined budgeting, by far the most important aspect of investing for the future of children is to start early – and to save regularly.
Strategies for funding education costs of your children
Having identified that the cost of raising children appears to be prohibitive to many families, and established that one of the greatest costs associated with that vocation is their education, what can we do to ensure that there are funds available for those critical years?
For many of our clients looking for a strategy in this regard, the secondary schooling costs are targeted. Depending on the number of children to be provided for – and their ages when the strategy is commenced – elements of each of the following strategies may be incorporated:
The range of options includes:
- Insurance bonds
- Scholarship funds
- Managed funds
- Term deposits and higher-yield savings accounts
- Self-funded annuity-style investment
- Direct shares
- Pay off your non-deductible debt (home mortgage; credit cards; personal loans etc)
- Pre-pay school fees
- Family trust
Funding education costs in a practical way
In determining which strategy is most suitable for funding children’s education in your family circumstances, the advantages and disadvantages of each of the available options need to be evaluated. Issues such as simplicity, tax effectiveness, liquidity, adequacy of outcome, title on demise, ability to continue contributing and cost, all need to be considered in this context – along with the available timeframe.
Starting the process is the identification of surplus funds that can be set aside to provide the necessary funding in the appropriate timeframe. As mentioned above, a key starting point in that regard is the establishment of a budget, understanding the risks to being able to live to that budget – and then rigorous discipline, adhering to the budget.
Reviewing progress toward goal achievement
Funding education costs does not come ‘cheaply’: the tried and tested way to achieve financial goals such as this one, is to develop a plan, document it, review progress of its implementation, revise it as circumstances change – and ‘stick to it’.
These are processes that the advisers at Continuum Financial Planners Pty Ltd work on with clients on virtually a daily basis: to ensure your family isn’t disappointed when it comes time to fund the children’s education, use our website form – Contact Us – or phone our office (on 07-3421 3456) for an appointment with one of our experienced advisers to get your strategy under way.
(This article was originally published on 13 December 2009; it has occasionally been refreshed and/ or updated, most recently in January 2019.)