Funding your children’s education

When children enter the picture, your life changes in so many ways and your financial priorities shift in tandem.

From buggies to childcare to school fees, taking the time to do some financial planning around how to best structure your savings and investments to cope with these increased demands on your income for today and tomorrow could really help.

Paying school or university costs is never easy, but with a little planning and discipline, it can be managed. Having a deadline can help focus on building that lump sum.

As anyone with children will tell you, education is costly. But unlike most other major expenses, it never comes as a surprise. Nobody knows for sure when they might need to replace a car, but once your child is born, you can time their entrance to school and third-level almost to the day. In this way, education is more like an investment than an expense.

That gives you a great advantage when deciding how to pay for it all: the ability to plan. Think about it. Apart from retirement, no other life event provides such a clear deadline to work towards. Knowing that your child will need a large sum at a certain point in the future for a certain purpose clarifies your investment objectives and defines a concrete outcome for your saving.

So 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’.

There is 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 are particularly beneficial to fund third level costs. The current child benefit amount of €140 is roughly what you would need to put aside every month to be able to cover four years of third-level costs – more than €36,000 – in 18 years. A small hit to your cash flow over time eliminates a major expense in the future.

Adding private school fees into the mix (as well as the endless list of grinds, extracurricular activities, Irish college…) can mean parents need to consider additional funding and there are a number of investment options out there for parents, especially given where interest rates are currently for savers. The right option for your family depends on whether you have a lump sum upfront or whether you prefer to make monthly contributions over time.

2 children, ages 4 and 6 | Illustrative example only

- Net growth rate: 3%
- Inflation rate: 1.75%
- Discount factor: 1.229%
- Yearly school fees (secondary only) and annual cost of third level: €10,000 per annum.
- Monthly savings/sinking fund calculated so that required funds are available at the outset of secondary school/third level.

Another popular course of action is grandparents taking advantage of the €3,000 tax-free annual gift allowance available which means each grandparent can individually give a maximum of €3,000 per annum to a grandchild. That way, a grandfather and grandmother could transfer a maximum of €6,000 per child per annum which is currently outside the inheritance tax net.

Every year, thousands of students open their CAO offers to find out what their course options would be. Those who invested their time and prepared well for the Leaving Cert achieved the highest points. They bought themselves the luxury of choice and the absence of worry.

It’s the same with saving for education. You know when the exam is. Put in the time and the money and you should have options.