Saving for Kid’s Education - What Options to Go for?

I’m looking for start saving for my 10-month old for his education. Based for my research so far, I’m down to a few options.

  1. mortgage offset account, pro interest saved and no tax on such benefit, con no growth and low interest rate atm.

  2. scholarship plan (avoid ASG as per https://www.ozbargain.com.au/node/342417), pro earning at corporate tax rate and CGT free in 10 years, con high management fee (lifeplan ~1.7%, IOOF ~1.5%, depending on investment options).

  3. low cost ETF/index fund, pro low management fee (I like vanguard Int’l share index fund at 0.18%) and flexibility to change to another fund, con pay tax on full earning and growth.

I struggle to come up with a way to compare them as I’m mathematically challenged. Anyone can help shed some light?

Poll Options

  • 17
    Mortgage offset account
  • 0
    Scholarship plan
  • 5
    ETF/index fund

Comments

  • +13 votes

    Public school, then let them get their own HECS debt.

    • I don’t disagree. Graduating for uni totally debt free might give the kid the wrong idea abt how real life finance works

      • The first year of being HECs debt free i recieved the biggest tax return ever. Changed my life.

        • Why would that make you get a bigger tax return?

        • @nurries: As a graduate with HECs The employer withholds tax for people with HECS debts and passes it to the ATO or what ever they do. When your debt is paid the surplus withheld tax for HECS is returned to you in your tax return for that FY. I would have ticked a box on the tax form to reflect my HECS liability at commencement of employment.

        • @itsdougie:

          So were you getting HECS payments withheld from your pay despite having had paid off your HECS?

        • @nurries: you should tell your employer if circumstances have changed so they can adjust accordingly

  • Totally disagree that public school means a better education. I think it comes down to firstly the child’s aptitude and attitude to education which is set at home by the parents. My eldest has just finished VCE and has got into a very good Uni undertaking a great course in the medical field and he went to a catholic school (I do admit this is not a state school which semi negates my argument). He is very bright and has been steered in the right direction with parents that value education.

    As far as saving is concerned I would put the money into your mortgage and try and get this paid off which will put you in a better position to support your child’s education. In a catholic school we pay about $3k in fees for primary and $7k for secondary.

  • Get an investment property. My advice.

  • I was told by a financial planner that the education funds are not worth it and pumping all your money into your mortgage was the way to go. Yep you won't earn income on the money sitting there but the sooner you pay off your house, the sooner you'll have money for discretionary spending.

    • Plus one. Pump it into the mortgage, but plan to either redraw or have additional funds available when it comes to school time. You've got around 5 years to get started.

    • If the interest rate on the mortgage is higher than the interest on a savings account (which it must be) then you are earning more by putting it in the offset account.
      Say you owe $100 on 5% interest and have a savings account with 2% and you have $10 cash and are deciding where to put it. If in the savings account you'll have -$105 on the loan and $10.20 in savings for net -$94.80. If you put it in the loan you have net -$94.50
      Always put money wherever the highest interest rate is
      If the interest rate on the savings account was higher than the loan, then borrow 100 billion dollars, place in savings account, and make lots of money on the difference

    • Hmm… I was thinking about this too. I am in rental private property right now and gov't support me on rental also I am waiting list for public housing. now Im wondering if public housing will be my own house or Am i going to consider save money so i can buy my own house one day are? what are the bills if i have my own house is it more less than renting house? sorry I am so new on this. your thought much apppreciated

      • It will be more expensive owning your own house, the mortgage will be similar or more than market rent, plus rates or strata, and stamp duty and lawyer fees at time of purchase. If you need to be on public housing or have government assistance in your rental you wouldn't be able to afford to own a similar property. You may be able to afford something smaller or in a different location though.

  • bitcoin

  • Build a townhouses for each kid you plan to have in the outer suburbs, in 18 years time the city will reach its limits and there will be a nest egg for their education fund

  • Offset Account. You need to look after yourself first and get your families finances in order before worrying about the kid's. Paying down debt is one of the best uses of money right now especially with interest rates at a all time low. There is also no go guarantee that the other investments will make any money in the short to medium term given we seem to be near the top of a business cycle. Also, and any money made will be taxed whereas with an offset, you will reduce your overall liability and have more cash to spare.

    Education also has a way of playing itself out especially with tour generous HECS system. Success will also depend on the kid's aptitude and willingness to try learn get ahead in life. Sure sending kids to an expensive private school may help but again a lot of individual factors come into play

  • I’m looking for start saving for my 10-month old for his education.

    Sounds like you need to accumulate as much wealth as possible before he starts school (high school?)
    In this case, your goal (education) is not relevant. You can follow generic savings advice.

    1. Firstly, if you have any credit cards or other loans with a higher interest rate than your mortgage, pay them off first. Put any spare money into this.
    2. Since you have a mortgage, there's no point in looking into any traditional cash savings accounts (as you probably know)
    3. Reduce your outgoing expenses where it doesn't affect your quality of life. This includes looking at your Power, Gas, Phone, Internet, Insurance plans, and shopping around. Quite often, there are better deals out there if you change providers, or even just better deals with your current provider.
    4. Get an Amex if you don't already have one, and take advantage of the amex offers like shopsmall. These can save you hundreds per year which all ads up. Just don't buy anything you otherwise wouldn't have. Also, pay for everything on this where no surcharge applies. That money you would normally have spent goes into your offset account until right before the credit bill is due, saving you some interest. You also earn points at the same time, which can be cashed out to cover living expenses.

    I struggle to come up with a way to compare them as I’m mathematically challenged. Anyone can help shed some light?

    As you already pointed out, any earnings on shares would be taxed, and as you're mathematically savvy (no offense) but you'll probably get eaten by sharks in the markets, which are already unfair and set up to rip off newbies. I would stick to the offset mortgage account.

  • Stay away from those 10 year plans as they have high commissions.
    Stay away from ETFs as they are risky propositions especially at the current market high.
    Go for a good savings account and preserve your hard earned savings.
    Send your kid to a good local public school and you wont even need to save!

  • In my opinion your child using HECS is the most cost effective overall. Put any spare money of yours against your mortgage. If you have the money later, buy a solid investment, such as a property, for yourself.
    If your child needs help with some ad-hoc costs here and there at Uni, then you'll have the maximum amount saved yourself to help out. But i would not expect that to be much.
    But i would also hope that your child is working part time before/during Uni to fund their own costs outside of the core large costs covered by HECS. They will get some good life/work experience by having job too.

    If you want to do something more to help your child once they are working and over the HECS repayment threshold, then do it then, in which case you will be in a much better position having not paid out anything beforehand.

    I'd also suggest to take some professional financial advice, legislation changes all the time and there could be some other good options.

  • Don't put money in commercial "education funds".

    We now have both our children in Private schools ( They went after completing primary). We pay for it via rental income and also having sold another property to create our education trust for our kids. The trust fund pays for all fees and other costs relating to the children ie extra curricular activities. According to our planning the kids should still have about $30k each left over at the end of Uni. They however don't know this.

    We have the funds split across, property, Managed funds, cash term deposits, actual cash, precious metals and also shares. we actively manage this fund. Its actually almost a full time job.

    We were lucky in that we bought some investment properties in good locations prior to the latest market boom.

    We live modestly and are looking forward to our full retirement. We will be stepping back from FT work in a year or two. My wife and I are 50.

    •  

      The problem with looking forward to things is that life has a habit of throwing us a curved ball and upsetting our plans.
      That's why we must live our lives everyday.

    • can I ask what is the benefits of setting up a trust fund? I was thinking about running/paying everything from our savings account, is it because it's more tax effective?

      • Yes essentially. A family trust may be a good option if you have a large sum of money available. Although you'll need specialist financial advice and there are administration costs, a family trust can help you to legitimately distribute investment income and take advantage of lower marginal tax rates for certain members of the family.

  • I’m looking for start saving for my 10-month old for his education.

    You are to be commended but just as important, if not more so, is making sure that he will benefit from such an education. You need to put in the time to make your child interested in learning by reading to him and playing games that will develop his abilities. Babysitting by tablet and parents occupied on their phones or social media are not helping their child. Talking, expanding his vocabulary and providing stimulating experiences will maximise his natural abilities. He may then be able to obtain a place in a selective government school, which in my opinion is better than a private school. My children have attended both. Invest time in him and your return will be incalculable.

  • I use a combination of mortgage offset and index tracking ETF. I make monthly transfers to a seperate offset that parks all the money for the kid and then buy ETFs when it reaches a decent amount, thus saving on brokerage fees. Invested in IVV and NDQ when market went down recently.

    We bought our house near a good public school and did pay a slight premium few years back for that. Plan is to send the kid to public school and see if he can get into a selective school.

    My partner and I had our degrees paid by our parents. Seems unfair to not do the same for our only child. But no, we won't be pushing into one direction or the other.

  • Put all your money in Apple shares.

    That way when the school/uni forces the child to have the latest most expensive (i) device so it can run all the latest apps needed to fulfill its role of Internet teacher, all while keeping up with the Jones's and adding important bragging rights

    It won't bankrupt you also by then you could be a major shareholder and get freebies :)