Paying for your child's education is an expensive business for any parent, but it is just about one of the most important things you will ever give your child, and their education is not something you want to cut corners on. Therefore, you need to plan to save for your child's education as soon as possible, and you need to know you are contributing to your child's education savings fund in the most effective way.
1 Start saving for your child's education before they're born
If you are planning to have children or if you already have one on the way then you know they are going to need to go to school, and complete some sort of study once they finish school. Whether your child decides to go to university, TAFE, a technical college or take up an apprenticeship you can start saving for their future now.
It doesn't matter to begin with that you don't know exactly what you are saving for because you know that in one form or another you are going to help pay for your child's education. If your children are very young or still on the way you may also like to think about whether you will pay for just their high school education and encourage them to apply for a scholarship or get a part time job to pay their way through college, or whether you want to take care of all of their education costs so they can start their adult life debt free and with their own savings in the bank.
2 Research the costs of your child's education
This is where you need to start thinking about the types of education you are saving for because having a savings target will help you stay on track with your savings plan, as well as help you reassess your savings and funds along the way. Also don't forget to calculate the costs of the education, plus the incidental costs too; these include textbooks, workbooks, accommodation and travel.
Knowing when your child will need access to their education fund will also help you calculate how much you need. If you are saving for the college tuition of an unborn child you need to project the costs to what they will be 20 years in the future, if your child is already at school you only need to work out what tertiary education will cost in around 10 years.
3 Saving and investing tools, for your child's education
So now you have an idea of how much you need to save for your child's education, make sure you are using the right saving and investing tools to get you to that goal. Two of the main financial products you may choose start your child's education savings with are a high interest savings account, or a term deposit account.
A high interest savings account is a flexible online savings account which allows you to make deposits from your everyday transaction account whenever it suits you; you can even set up a regular transfer every pay day to make sure that constant contributions are being made to your child's future, without you having to remember. High interest savings accounts are usually fee free and will calculate a high rate of interest on your savings daily and pay you the compounded interest monthly. Because a high interest savings account is so easy to open and use, you can set up an education savings plan when you first start saving for your child's future no matter how old they are, and you know your savings will be safe and will keep growing as they are in a stable bank account, rather than a sometimes unpredictable investment portfolio.
A term deposit account requires an initial investment to offer you substantial returns, and the longer the term you choose, the more interest you will be able to earn on your investment. You can often choose a term for your term deposit from one month to five years, but the longer the term, the better the returns and the greater the investment amount, the higher the interest rate you'll be able to negotiate. Therefore, you may want to consider transferring some or all of the funds you have grown in a high interest savings account, into a term deposit account when your child starts high school, to give your education savings a boost in time for your child to decide what they want to study and where.
4 Education funds
There are a range of education funds and state operated savings plans which can help you save for your child's education in a reduced tax or tax free account. Often education funds are run in a similar way to a scholarship plan and this is what makes them tax effective, some education saving plan contributions can even be tax free. Often an education fund can be opened for any child up to the age of 10 years old, and you or your parents - the grandparents - can make contributions regularly, or in lump sum contributions when you are able. Education funds will allow you to save for your child's school or tertiary education and can be paid out as an allowance when your child goes to college to cover their books and living expenses.
5 Prepaid tuition
There are also state run programs which allow you to purchase a year (or however many years you choose) of tuition for your child at the cost they are now, to be redeemed when your child begins their study. This helps you overcome the issue of inflation affecting your savings, and saving an amount which covers the costs for your child's education now, may not be enough to cover the costs when they actually need the funds.
There are a number of dedicated education saving financial products, and state and government initiatives will also vary depending where you live, and where your child decides to study. That's why it is important for you to start with these top five tips and do your own research on the best way to save for your child's education.