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An effective way to save for your children’s education cost

by Wealth Architects / 14.03.2019

With housing affordability at a low and the ever increasing costs of education, wouldn’t you like a way to give your child or grandchild a financial head start?

Giving a child a good education can be expensive

Recent studies have shown that 45% of Australian families will choose to educate their children in a private school, but private school education comes at a cost.

It is estimated that only about half of parents can afford to pay for fees out of their disposable income. Many turn to credit cards, personal loans, extend their mortgages or call upon grandparents for assistance.

How can you ensure you have the means to pay your children’s education when the time comes?

The key is to have a plan, start early and consider an investment bond as a tax effective, flexible investment solution.

How can an investment bond help?

Investment bonds are a tax effective way to save for the cost of education as they are a tax paid investment. This means the tax paid on investment earnings is paid by the bond provider at a tax rate of up to 30%. This is particularly attractive for higher income earners with a marginal tax rate of up to 47%.

You won’t need to declare any income/returns from the investment bond in your annual tax return (unless withdrawals are made) and your investment is free from Capital Gains Tax after 10 years with flexible access throughout.

Compounding returns – your new best friend

Described by Albert Einstein as ‘the most powerful force in the universe’, compounding returns are the key benefit to starting early.

Simply put, with compound returns, you will earn returns not only on your initial investment, but also on the returns on the investment itself (i.e. earning interest on interest). This means that your total return grows exponentially the longer the time frame. The longer you can keep the investment untouched, the more your wealth will grow.

The surprising benefits of a regular savings plan

Investment bonds are flexible investments offering you the ability to make regular contributions from as little as $100 per month. Setting up a regular savings plan is an easy way to grow your investment without even having to think about it.

Add compounding returns in the mix and you’ll be packing your children off to the best school before you know it!

Final Word

If you’d like to learn more about how an investment bond could help you save for your children’s education or how they can be utilised for other tax effective purposes, please reach out to us. As with any product or strategy, you have to insure it is appropriate to your circumstances.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.