Take control of education costs: Lifeplan

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Many parents get a nasty shock when they realise the cost of new textbooks and supplies needed at the start of a new school year, following hot on the heels of the expense of Christmas and summer holidays. However, some families have taken control of the annual back-to-school expenses by putting in place a budgeting and savings process separate to the day-to-day family budget, says Mr Matt Walsh of Lifeplan.

Many parents get a nasty shock when they realise the cost of new textbooks and supplies needed at the start of a new school year, following hot on the heels of the expense of Christmas and summer holidays.

However, some families have taken control of the annual back-to-school expenses by putting in place a budgeting and savings process separate to the day-to-day family budget, says Mr Matt Walsh of Lifeplan.

“The feedback that Lifeplan gets from families is that they want some control over the impact of the costs associated with giving their children the best possible education.

“Many are aware of the trends in other countries such as the US, where recent reports have highlighted the cost of education, particularly tertiary education, and the levels of debt being taken on by parents and students. One report says that student loan debt, at $850 billion, now exceeds credit card debt in the US, at $828 billion*.

“However, while this might be largely attributable to tertiary education, it shows that long-term planning can help control the finances, and a program of budgeting can also help manage the increasing costs of primary and secondary school education.

“Even in public schools, parents are expected to provide a number of supplies and extras, and it’s easy to understand why parents are worried about how they are going to pay for their children’s schooling and ongoing education.

“They are right to worry – education is one of the fastest rising components of the Consumer Price Index and, over the last 15 years, education costs have risen 120 percent compared to just 47 percent for headline inflation figures.

“But at the same, parents shouldn’t feel helpless – there is a lot that they can do to manage the burden of education costs.”

Mr Walsh said that some simple steps can help ensure there are funds available when needed to pay for those extra bits and pieces – such as text books, sport equipment, musical instruments, and even travel costs or extra tuition.

Set goals
The first step is to set achievable and realistic savings goals as early as possible – the earlier the parents start, the more money will be available when the child needs it at school.

“Having a target in mind helps people stick to their plan. For instance, aim to save enough money to pay for textbooks and stationery for high school, by the time the child finishes primary school,” Mr Walsh says.

“Think of the savings as a nest egg that will help absorb education costs, not pay for the whole education.

“By deciding in advance what costs will be covered by the savings, they will also be able to work out what costs will need to be paid for out of normal income.

“It’s important to remember that they can continue to build the fund while the child is in primary school or high school.”

Make the most of any bonuses
Mr Walsh points out that a good way to save is to put aside the money that you won’t miss, such as pay rises or lump sums such as bonuses or tax returns.

“The idea is to put this ‘extra’ money straight into an education fund before it is absorbed into normal expenditure. For example, use the government’s baby bonus to kick-start the investment.

“Another idea is to encourage other family members to give birthday and Christmas ‘education donations’ instead of toys or games. As many may have experienced over Christmas and the holidays, children get more toys than they know what to do with – and many have a limited life – but a $50 investment into a plan will buy a number of text books in 12 years’ time!

“Parents and family members don’t need to think it terms of big amounts. Lots of affordable amounts over time will add up, and small but regular contributions are more likely to see goals realised that big deposits made when parents feel they can afford it,” he said.

Choose your savings plan carefully
“In many cases, the education savings won’t be required for several years so invest in funds with growth potential.

“Most education savings plans have a time frame of greater than 10 years, so the compounding growth of investment markets can do some of the heavy lifting.

“The more recent education plans, such as our Lifeplan Education Investment Fund, allow parents to choose between different risk and return profiles, from conservative options such as a cash fund, to high growth managed funds from a range of leading Australian and international investment managers.”

Take advantage of tax benefits
Some savings plans offer extra tax benefits. Friendly societies like Lifeplan, for instance, can provide tax-advantaged plans which, over time, will make a big difference to the amount saved.

For example, they allow a special tax refund on education expenses claimed from earnings by the fund, which is passed on to the investor and student.

* Source: Mark Kantrowitz, FinAid.Org

Lifeplan Funds Management is a specialist business of Australian Unity Investments. It is a market leader in investment and funeral bonds, and a provider of education investment funds.

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For more information please contact:
Matt Walsh – 08 8236 4706

17 January 2011