Thousands of students returned to school last week and many more are heading off to university this autumn. But for parents, school and university costs can be daunting. Here we consider ways to plan ahead for these costs.
From cradle to childcare to college, life changes when you have children – and so do your financial priorities.
That is why it is important to take the time to do some financial planning around how to best structure your savings and investments to cope with the increased demands on your income for today and tomorrow. With a little planning and discipline, the costs of raising a child can be managed.
One such expense is education. It’s not easy to pay school or university costs, but unlike most other major expenses in life, it never comes as a surprise.
Sure, no one knows when they might need to replace a car, but from day one you can time your child’s entrance to school and third-level education almost to the day. In this way, education is more like an investment than an expense.
A costly lesson
When it comes to second-level education, many parents are opting to send their children to private or fee-paying schools. Last year, enrolments in fee-charging schools climbed to more than 26,2261 – marking the highest level of enrolments on record.
The most expensive private schools charge over €9,000 a year for day pupils and up to €24,500 a year for boarding. That is before you add the costs of grinds, extracurricular activities, and Irish college.
When it comes to university, in addition to standard fees, consideration now must be given to surging inflation, higher rents and rising food prices.
According to the TU Dublin Cost of Living Guide for 2022/23, the cost of living away from home for third-level students is €1,478 a month, or €13,305 for the full academic year – that includes the €3,000 a-year contribution charged by publicly funded colleges.
Overall, that works out at over €53,000 for four years of third-level costs – a major expense in the future.
How to manage the costs
An understanding of the potential costs of education and a clear deadline to work towards should clarify your investment objectives and define a concrete outcome for your saving plans.
Instead of having to figure out how you are going to pay school or university fees out of current spending when the time comes, you can know in advance that it’s taken care of. In other words, saving enough comes down to a question of ‘how much?’ rather than ‘if’ or ‘when.’
The best place to start is with child benefit – it’s a simple and convenient way to build up an education lump sum without even making an extra effort.
Child benefit payments align perfectly with long-term education saving – they are untaxed, monthly, and run for 18 years; so, they can be particularly beneficial to fund third-level costs.
The current child benefit payment for one child is €140 a month for 18 years (€30,240) – and if it is feasible, parents could put this aside every month to help towards their child’s future education costs. While it’s a small hit to your cash flow, it alleviates a significant future expense.
If these funds were saved on a monthly basis into a well-diversified investment fund for 18 years, with an average return of 5% per annum, it has the potential to grow to €48,533.
Parents may need to consider additional funding for private school fees, extracurricular activities and so on. There are a number of investment options out there for parents – the right option for your family depends on whether you have a lump sum upfront or whether you prefer to make contributions over time.
Another consideration is the Small Gift Exemption, which parents and grandparents may wish to take advantage of. Each parent or grandparent can individually give a maximum of €3,000 (the tax-free annual gift allowance) per annum to a child/grandchild.
That way, both parents and / or both grandparents could transfer a maximum of €6,000 per child per annum which is currently outside the inheritance tax net. Again, investing this rather than saving it can have a significant impact on the amount available when it is needed for education costs.
Planning ahead is key
Remember, when it comes to putting money aside for your children's education, two things are key - starting early and saving consistently.
That way, you'll be better prepared to wave your child off to college when the time comes. After all, a good education will give your child or grandchild the best start in life.
This article featured in the Q3 2022 edition of Wealth Matters - our quarterly publication that presents our views on the investment landscape and explores key wealth planning themes to help build and protect wealth on behalf of individuals, families and entrepreneurs across generations.
To read or download the report in full, click here.
