Every parent wants the best for their children and to give them every opportunity possible. However, this comes at a seemingly ever increasing cost.
In the past 10 years, independent or private school fees in NSW have increased by 61%, according to the ASG Planning for Education Index released in 2018.
These figures explain why so many of the clients who see me for financial advice are adding their children’s education to their “major financial goals” list.
As well as being a certified financial planner, I am a concerned parent, with my daughter Zoe in her first term of kindergarten.
Working in financial services, I was fortunate enough to be aware of the cost of education, so my husband and I started planning our daughter’s future and the best way to finance it long ago.
When Zoe was born almost five years ago we set some goals and decided to put her through the government system from K-6 and then move to the private system to see her through the high school curriculum.
We knew that to fund the private education years we would need to start saving.
Figures released in the 2019 ASG Planning for Education Index show that if you’re Sydney based, putting your child through the government education system for 13 years will cost $66,470.
The Catholic equivalent is $114,531 and for a private school it is a hefty $461,999.
I researched many options and found that an education scholarship fund, an investment with some tax benefits, is the best solution for our situation.
If you’re considering investing in a similar education fund, it’s useful to know the tax office has special rules for education investments.
They are tax paid (the fund pays tax at 30% on any investment earnings), and when you withdraw your investment earnings to pay for approved education expenses the tax that the fund has paid is refunded to you in full.
Among the tax-effective investment plans for education, there are only two that qualify as scholarship plans and receive the tax benefits from the ATO.
However, through client consultations, I find more parents want more choice when it comes to education options for their kids.
But, unfortunately, they haven’t planned far enough ahead.
They have to rely on their current cash flow to fund education. And with the cost of living increasing, families are actively looking for ways to cut costs. Sadly, education is sometimes one of those areas, as many families cut “discretionary spending”.
You can dip into the family savings or take a higher mortgage to afford private school fees, but you need to weigh up the benefits of that education against additional long-term debt and how it would impact your family’s welfare.
Is it really worth it? Quality education is not limited to private schools or those offering high-cost facilities.
Children have different needs and thrive under various circumstances, so find what works for your family.
Research the options in your area or close to work, as some good government schools accept out-of-catchment applications if there are sufficient reasons.
If the chosen education pathway for your children is a strain on your cash flow, consider other goals your family might have, such as being debt free, retiring early or even going part-time to spend more time at home.
These goals need to be reviewed as a whole and prioritised in order to make the right decision. Quite often it’s helpful to involve a professional to see a clear way forward and help you articulate what’s important.