Finding the money to pay the soaring costs of education is a battle for many Australian families. With no relief in sight, it's time for some serious planning.
Raising a child in the new century looks is more costly than ever. A recent report indicates the basic cost of raising two children to the age of 21 now exceeds $500,000. Add private education fees and the figure soars. Make no mistake, alongside the mortgage, education is becoming a substantial and sobering cost for families.
Choice magazine regards the cost of education as one of the fastest growing life costs in the Australian community, growing at around 6 per cent a year. To put this into perspective, consider that $1,000 in today's dollars, will be close to $1,800 in 10 years time.
And it's not just for the growing number of children attending private schools.
Contrary to common belief, public education is not free. Increasingly, costs at government schools are being passed on to parents who can expect to pay around $800 to $1,200 per child each year on school levies, uniforms, books and excursions. And while the cost of non-government education varies enormously depending on which state and which
school, on today's figures, parents can expect to pay between $5,000 and $17,000 per child each year at secondary level.
Planning for future expense
Education is one cost that can be planned for a long time before children even step foot in the playground. Given the long lead times associated with bearing and raising children, the opportunity is there to plan ahead.
A regular investment plan is a good way to prepare for future education costs. It has the benefit of longterm investing and the simple but effective powers of compound interest. A family with a baby due later in the year, for example, might start a regular investment plan using any gifts of money intended for the baby, and then continue to contribute a
monthly amount. Over this sort of timeframe, using a cash management trust or managed fund can be better than putting the money into a traditional savings bank account - or the piggybank.
If you've already got children, it's not too late either. The power of compound interest simply warrants getting started as soon as possible.
Start small, now
There's a misconception that people have to start with a large amount when they're investing money. This is not the case. Even with a small amount, the key is to start now and not put it off, to benefit from long-term investing. A survey conducted by Newspoll discovered that about half of all parents use their general savings to pay for school fees. Of the other half, around a third use savings from a special education saving account, 28 per cent tap income from specific investments, while 21 per cent take a part-time job to pay the fees and 14 per cent use a personal loan or draw down on their flexible mortgage to meet the cost.
Only 40 per cent of parents 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.
So like any long term goal, when saving to pay for your children's education it can be as simple as ensuring you start as early as possible.
As always, Dominique Schuh can assist you to devise an appropriate strategy to start saving for your children's education.
1AMP.NATSEM Income and Wealth Report, 2007