According to the May 2007 Education and Work Survey conducted by the Australian Bureau of Statistics, unemployment rates declined with increasing levels of education. This shows education is key to financial security for young people.
However, meeting the rising costs of education is a huge responsibility for many parents, hence the importance of saving for children’s education. Here are some strategies to help Australian parents start their kids’ school funds.
Start Saving Early for Children
It typically takes five or six years before a child begins her early education. So parents do have quite a long time frame to start saving. Ideally, do this before the child is even born. A cash savings of only $20 a week invested into a high interest savings account can help the parents save more than $1000 within a year. If the amount is reinvested year after year, it will grow into a sizable sum in 10 years. Make sure this fund is only for the child’s education and avoid using for other household or personal expenses.
Open a Child’s Account in a Parent’s Name
Punitive tax rates – 46.5% when the interest income exceeds $420 per year – are applied to investment income earned by children. So avoid investing in the child’s name. Instead, invest in the name of the parent with no or lower income. In fact, a non-working spouse could earn an annual income, including investment income, of $14,000 before paying income tax.
Invest in Managed Funds or Trusts
As it take years before a child steps into school, long-term investments like managed funds or trusts are extremely useful to save for children’s education. These investments are professionally managed by experienced fund managers and offer the opportunity to buy a diverse range of listed Australian and International shares. Start with a capital of $1000 and make a commitment to contribute $50 to $100 a month and the returns will snowball over the years.
Use School Savings Plans
In Australian, many leading banks and fund specialists like the Australian Scholarship Group (ASG) and Lifeplan also offer school or education saving plans for children. These plans are often tax-effective as the Australian government encourages parents to save for their children’s education. However, proceeds from such plans are only meant for children’s education and cannot be accessed earlier. Those who withdraw funds before they are due often face a penalty.
Good education often equates better job prospects and salary packages. That’s why parents are willing to spend on children’s education. However, they need to start saving for it early and invest it wisely in a parent’s name. They can also invest in managed funds or trusts and use school savings plans to start their kids’ school funds.
Found this article useful? Read also Meeting the Costs of Children's Education, Managing Private School Fees and Using Debt to Finance Children's Education.
References:
Power, Trish and Drury, Barbara. Investing for Australians for Dummies. Milton: Wiley Publishing Australia, 2008.
The Australian Jobs 2008 Survey
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