The perks of private education are hard to deny but so are the extortionate fees which many families simply can't afford to pay. If we go by the numbers, the fees won't be going down anytime soon, and parents aspiring to send their kids to private schools need to prepare for this reality.
The Sydney Morning Herald recently reported that parents are paying more than $37,000 to send their children to some of Sydney's most prestigious private schools, and fees are rising by as much as 5 per cent in 2018.
So, if you're convinced on private education for your children, what can you do to prepare?
Savings accounts are an easy way of pulling together the funds for your child's education. These accounts can be set up in your name or your child's. They often have limitation upon how much, and when you can withdraw which helps prevent parents from dipping into the funds they've setaside. Although this option is easy to set up and manage, it's also susceptible to taxes and this can undermine some of the benefits. According to the Australian Taxation Office, how your savings account is taxed depends on factors such as your child's age and the interest earned from each year. Before finalising anything, check with your bank and the ATO about who would be required to declare the interest obtained, whether a Tax File Number will be needed and if you need to lodge a tax return.
Offset Your Mortgage
For homeowners, mortgage offset accounts can be an easy way of saving up for your children's education. Paying off your mortgage doesn't just save you dollars in interest but also frees up savings you can draw upon later. When setting up an offset account, look for low or no fees. However, since the money isn't set aside for a specific reason (as it would be in an education fund), the temptation to spend it on other expenses is a common one.
If you want to set aside savings expressly for educational expenses, an education fund can be a better option than a general savings account or an offset account. The savings you put in these funds are tax-free investments, but it's important to ask some questions before going ahead. Be sure to check and compare the following:
Fees and set up costs
Amount and frequency of contributions
What are you allowed to spend these savings on?
What steps are required to get access to the funds?
This is an excellent alternative if you already have a significant amount of savings set aside for your children's education. However, to efficiently use a family trust, you'll need to get in touch with a financial adviser.
Investing in your child's future can be a stressful task, but parents don't have to go it alone. Government agencies like the Australian Securities and Investments Commission offer online resources that can help you plan. The savings goals calculator and TrackMyGOALS tool can be a good place to start. You can also head to third-party calculation tools and financial advisers for advice before making a choice.