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1. Saving for your children’s education
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Australian Scholarships Group (ASG) have just released an online calculator designed to help parents estimate the future costs of their children’s secondary school education. They claim it is based on extensive research of costs in addition to school fees. You can also select to calculate for different categories of school and differentiate based on your state of residence.

You may also be interested to read this more detailed research report from AMP & NATSEM, which examines the total cost of raising children. AMP & NATSEM Report – The Cost of Raising Children (Oct 2002) Note that the figures are based on values in 2002 and should be indexed for inflation.

(Please note that Australian Scholarships Group also offer education savings plan products – this post is NOT a recommendation for their product nor a recommendation for ‘education bond’ class of products . There are many different ways to save for your children’s education and you should explore them with your adviser.)

You may also enjoy these related articles:

1. Saving for your children’s education
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Daddy's Precious Angel (aka Sophie) on my first Father's Day

Our Children: we love them from the depths of our hearts and we dream of the many experiences that we want to give them. I often here parents say “I want to give my children the best start in life that I possibly can.” One of those “best starts” that parents often have in mind is to send their children to private school.

Research suggests that the cost of raising children can be about a quarter of a million dollars per child over their lifetime. When you add private school fees to the mix (and every associated expense), you can probably increase that by another 50% or more. So it is a wise idea to plan ahead and incorporate future education expenses in your wealth creation plans right from the day the “c” word enters your relationship conversations.

How Much Does Education Cost?

Recently The West Australian newspaper released a “Guide to Independent & Catholic Schools, 2006/2007″. They summarise that in fees alone primary school costs ranged from $600 to $8,000 per year, and the secondary school fees ranged from $1,200 to $13,500 per year. In addition you can expect to pay for books, uniforms, laptops, sports, camps and other special tuition, depending on the school.

Looking through the range of fees it appears that a large proportion of the fees for primary school are around $3,000 per year, and around $5,000 per year for secondary school.

I then asked my tutorial students at Curtin University for an idea of university costs and they suggested it costs about $10,000 per year.

A $6,000 per year Savings Plan

Based on those broad averages above if you start saving from the day each child is born you need to save approximately $6,000 per year, for each of their first 21 years. That estimate is in today’s dollars, so each year you need to increase the amount by around 3% to keep up with inflation.

(For those number crunchers reading this there are a bunch of assumptions built into that estimate. I have assumed a balanced portfolio, and that fees increase by 7% p.a. which is the average increase over the last 15 years.)

A Common Savings Plans

It seems that when many people think of education savings plans they think of the formal plans promoted by a couple of prominent groups. Such plans require a regular monthly payment and you only get your money back according to a specific schedule, and under the right circumstances it could be tax free. These plans operate under special provisions in the tax act, and are also known as Education Bonds.

These products have improved in their flexibility in recent years, but they are still not super flexible. For people who are not very disciplined savers (spenders), the rigidity of these plans can be just what the doctor ordered.

An Alternate Approach

If you want the best wealth creation strategy then I suggest you take a broader view. Consider saving for your children’s education in the broader context of your overall lifestyle creation strategy. After all, children’s education is just another lifestyle expense like saving for a big family holiday or a new car.

Other options you could consider include one or a combination of:

• Saving into a dedicated bank account
• Saving into a diversified portfolio of managed funds
• Making extra repayments onto your mortgage, saving loan interest, and then later redrawing from your mortgage to pay school fees or just paying the fees from your income once the loan is repaid
• Gearing, using a home equity line of credit or a margin loan using instalment gearing

How To Decide

To decide the best strategy for saving for your children’s education you need to find an appropriate balance between such factors as:

• Your saving/spending discipline and habits
• If you have any existing lifestyle debts such as mortgages, car loans, personal loans and purchase payment plans
• Your marginal tax rate
• Your tolerance of investment risk (also known as your risk profile.)

Your Next Steps

The best way to save for the cost of children is not to do it in isolation. To in fact do it as part of a more comprehensive look at your wealth creation, because in doing so it opens up a broader range of strategies and possibilities to you.

And that all comes down to your goals and dreams.

So the best next steps are:

• Work out what type of school you want to send your children to
• Find out how much that will cost
• Add that to your broader lifestyle dreams
• Ask a financial planner to help you create a strategy that achieves a balance of them all

You may also enjoy these related articles:

1. Calculating the costs of your children’s education
2. Kids, they might be cute but they are costly