Heading off school fee bill shock
The cost of educating children has surged in the past decade, research shows. (Getty)
“The only thing that is more expensive than education is ignorance.”
Research and reason suggest that this statement from Benjamin Franklin, one of the US Founding Fathers, holds as true now as when first expressed in the 18th Century.
And as a parent myself, I know all too well that while children provide our most treasured and bittersweet moments, it’s worth families bracing themselves for one of the ultimate bill shocks of our time – the cost of education.
According to a 2018 ASG study, the cost of private and faith-based education rose 61 per cent and 54 per cent, respectively, over 10 years, whilst wages grew 34 per cent. Government education increased 23 per cent during the decade. Breaking it down further, the education scholarship plan provider estimates the total schooling costs of a child born in 2018 could be anywhere between $50,641 and $475,342, depending on location and schooling type.
Parents in regional areas sending children to government schools apparently pay at the bottom end of that national range, while those in metropolitan areas who opt for private schooling are looking at the top end.
And these figures are just a guide, with actual costs potentially higher.
For starters, The Australian Financial Review reported this week that fee increases at private schools are running at “nearly twice the rate of inflation and have outpaced wage growth every year for a decade”. More broadly, there’s also the indirect costs of education – the laptops, school uniforms and excursions – that can add tens of thousands of dollars in additional cost.
At a time of rising living costs and weak wages growth, for some families this can be tough, with a survey commissioned by the Smith Family of more than 1000 Australians finding 64 per cent said children’s education costs were unaffordable.
Clearly, whichever way you look at it, education is a staggering yet essential cost to ensure our children prosper and grow.
So, are there some simple ways to move beyond survival-mode and look forward with confidence? Indeed.
Whilst there’s always the arbitrage of moving to a regional area for the lower school costs and a sea or tree change, this might not be a practical option for many people.
But in a lot of areas in Australia, parents and primary caregivers have choice where their children go to school – government, systemic and independent schools etc. It’s natural to want to give your children the best start in life and parents will choose what they feel is right for their situation and child.
Either way, planning ahead and budgeting early is critical.
Firstly, be clear on your family’s education savings goal, including involving and discussing with your children the importance of saving. Alongside this, consider your other financial obligations such as a mortgage or car loan.
And perhaps surprisingly, your home loan might be a simple, but potentially effective way of saving for education costs. It can be done via the use of offset accounts, which are attached to home loans and enable borrowers to hold money to reduce the amount of principal they pay interest on. In effect, the money you have in an offset account thus generates an after-tax return equal to the interest rate of your home loan until you pull it out and pay the school fees.
Another option is to put your savings into an education fund which attracts tax incentives. Alternatively, spare funds could be invested in shares, investment bonds, managed funds, term deposits and savings accounts. But it’s important to consider your risk tolerance. There’s always a trade-off between risk and return. Put simply, the higher the risk, the juicier the potential return. But it works both ways and with more risk may also come more stress.
Finally, school fee insurance options have sprung up to provide peace of mind in knowing that if the worst should happen, and your income dries up, your child's future education is covered.
A good education is a human right and the greatest gift that a parent can give to their child. But irrespective of which education option you select there is no such thing as a free education – and the research says the cost is rising quickly.
Like all long-term saving and investing goals, the best time to start is right now.
More free live webinars and on-demand videos of downloadable tools to help people to build their financial confidence at Westpac's Davidson Institute.
The views expressed are those of the author and do not necessarily reflect those of the Westpac Group.
The information in this article is general information only, it does not constitute any recommendation or advice; it has been prepared without taking into account your personal objectives, financial situation or needs and you should consider its appropriateness with regard to these factors before acting on it. Any taxation position described is a general statement and should only be used as a guide. It does not constitute tax advice and is based on current tax laws and our interpretation. Your individual situation may differ and you should seek independent professional tax advice. You should also consider obtaining personalised advice from a professional financial adviser before making any financial decisions in relation to the matters discussed.