Raising children and the cost of education

The cost of education is continually rising, with some private schools charging fees of up to $20,000 a year, and that doesn’t include uniforms, excursions and after school activities.  The cost of earning a degree particularly in the popular disciplines like law, IT and medicine is also rising.


Most parents know the importance of doing this, but are unsure how to start or what product or strategy to follow, particularly when there are tricky tax rules to be aware of. For example, if you put the investments in your own name, any interest income is added to your taxable income and may reduce your Family Tax Benefit. If you put the investments in your child’s name, penalty tax rates apply once they have unearned income over $3,333 in 2010–11.

So, what to do?  Here are a number of options to consider.

Mortgage offset account


Gearing into Australian shares


Investment bonds

Another option is an investment bond. These products sometimes have other names but are essentially tax-paid life policies where you choose the investment strategy. If they are held for at least 10 years, the proceeds are tax free when cashed in.


Friendly society education plans

These are similar to investment bonds in some ways. The friendly society pays tax at 30% and income is reinvested. However, a special tax concession allows the friendly society to claim back the tax paid if the funds are used for educational purposes.

The plan proceeds must be used for educational purposes, but there is more flexibility in making contributions and withdrawing funds than in an investment bond.

No one solution suits everyone. We recommend you talk to one of our financial advisers to see how the above options may best suit you and your family’s circumstances.