Important Tips : Saving Money for Children's Education

Start Saving Early for Children

It typically takes five or six years before a child begins her early education. So parents do have quite a long time frame to start saving. Ideally, do this before the child is even born. A cash savings of only $20 a week invested into a high interest savings account can help the parents save more than $1000 within a year. If the amount is reinvested year after year, it will grow into a sizable sum in 10 years. Make sure this fund is only for the child’s education and avoid using for other household or personal expenses.

Open a Child’s Account in a Parent’s Name

Punitive tax rates – 46.5% when the interest income exceeds $420 per year – are applied to investment income earned by children. So avoid investing in the child’s name. Instead, invest in the name of the parent with no or lower income. In fact, a non-working spouse could earn an annual income, including investment income, of $14,000 before paying income tax.

Invest in Managed Funds or Trusts

As it take years before a child steps into school, long-term investments like managed funds or trusts are extremely useful to save for children’s education. These investments are professionally managed by experienced fund managers and offer the opportunity to buy a diverse range of listed Australian and International shares. Start with a capital of $1000 and make a commitment to contribute $50 to $100 a month and the returns will snowball over the years.

Use School Savings Plans

In Australian, many leading banks and fund specialists like the Australian Scholarship Group (ASG) and Lifeplan also offer school or education saving plans for children. These plans are often tax-effective as the Australian government encourages parents to save for their children’s education. However, proceeds from such plans are only meant for children’s education and cannot be accessed earlier. Those who withdraw funds before they are due often face a penalty.
Good education often equates better job prospects and salary packages. That’s why parents are willing to spend on children’s education. However, they need to start saving for it early and invest it wisely in a parent’s name. They can also invest in managed funds or trusts and use school savings plans to start their kids’ school funds.