happy primary school children waving at camera

The ultimate conversation stopper for most parents at the weekend BBQ with friends is, 'How will you pay for school fees?'

Asking this question usually results in all surrounding conversation falling silent, as everyone has an opinion on this uncomfortable and expensive topic.

Braces, Orthodontics, and School Fees – the big three conversation stoppers for every parent (and engaged Uncle or Aunty).

No matter if you're hoping to send your child to an elite private school, a selective school or the local government school, you know you're going to need to dip deep into your pocket.

If you're planning for a child's education likely to span 13 years from kindergarten to Year 12, the sooner you begin planning for this expense, the better your likely outcomes will be. Life-long learning costs for us adults are also a growing issue for many knowledge workers and professionals who will also need to regularly upskill and reskill throughout their careers.

Below we'll look at different ways to tackle this seemingly insurmountable financial challenge of modern life, and continuing education.

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Funding your children's education - How deep will you have to reach into your pocket?

Fact of Life #1 — Getting the education we want for our children is going to cost money - and for the majority of us, sacrifice and some sort of a long-term saving plan. 

  • Like many things in life, it helps to set goals and plan for them, but what if you could automate the process and break it down into weekly, monthly, and yearly saving goals?

Education is extended into Adulthood

Fact of Life #2 — Today's modern education-driven employment market means there is an ever-growing competition for and need for lifelong learning and education.

As technological, social, and economic changes continue to accelerate, there is a continual need for ongoing development and upskilling just to remain competitive and for future-proofing careers.

Chart showing total average cost of education in Australia

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What you may need to save, Weekly, Monthly, or Annually to achieve your educations goals

Have a plan for your money and know the numbers you need to work with, weekly, monthly, and annually.

2023 Education Costs — Kindergarten to Y12

The following table averages both city and regional costs for education for 2023.

$AU School FeesGovernment School |Catholic School |Independent School
Estimated average total cost for (K to Year 12) 13 years $84,554 $173,706 $288,880
Start saving when a child is born 18 years 18 years 18 years
Save Yearly $4,697 $7,802 $18,938
Save Monthly $391 $804 $1,3378
Save Weekly $90 $185 $307
       
Start saving when the child starts school 13 years 13 years 13 years
Save Yearly $6,504 $10,803 $22,221
Save Monthly $535 $1,113 $1,851
Save Weekly $124 $256 $426

Education is a long-term investment - so Get Practical

If you're planning to save for an important long-term project, like education fees, be pragmatic about how you manage money and get to know your own money behaviors.

Here are three options many people use to save for a children's education

1.  Use a high-interest Savings Account

The traditional savings account is a good start to any longer-term plan. The downside is you will pay tax on the earnings of your savings, at your marginal tax rate

If you open a savings account in your child's name, they will pay tax at the highest marginal rates when earnings exceed $1,307. Special rules apply and you pay tax on certain income types at a higher rate on income you receive if you're under 18 years old.

2023 Tax rates for Australian Residents who are under age 18 for 2022–23

Special rules apply and you pay tax on certain income types at a higher rate on income you receive if you're under 18 years old. This rule was introduced to discourage adults from diverting income to their children.

IncomeTax rates for 2022–23 income year
$0 – $416    Nil
$417 – $1,307    Nil plus 66% of the excess over $416
Over $1,307 45% of the total amount of the not excepted income

Source: ATO

2.  Saving in an Offset Account attached to your Home Loan

A simple, but potentially very effective way of saving for education costs is through your home loan's offset account.

An offset account allows you to make extra repayments into a bank account attached to your home loan. These extra savings are liquid and help reduce the daily interest rate calculated on your home loan too. For example, if you have a home loan of $500,000 with $100,000 in an offset account, the bank calculates interest based on only $400,000. When the time comes due to pay education costs, you can redraw those additional funds you saved over the years, on demand.

  • The money you have in an offset account is generating an after-tax return equal to the interest rate of your home loan. For instance, if your bank is charging you 6.00% interest on your loan, the funds in your offset account save you this rate of interest being charged.

Pro Tip: Compared with a standard savings account, the value of an offset account is usually greater than the interest in a savings account (that you will also need to pay tax on).

  • The key to this strategy is discipline and the ability to resist temptation, for the next 13 years.

3.  Savings in a Saving (Investment Bond)

An alternative and equally effective way of saving for education costs is through a Savings Bond (also referred to as an Investment Bond). They provide a variety of investment options such as shares, property and fixed interest, that are not normally available to minors.

Pro Tip: Investment bonds are also referred to as 'tax paid investment bonds' because any earnings get taxed at the company tax rate (currently 25%) within the investment. As long as money remains invested for 10 years, the investment provider pays the tax on the investment earnings so you don’t have to report the earnings in your tax return.

Pro Tip: For people in high-risk occupations, tradies or self-employed business owners with heightened bankruptcy risks, a Savings Bond (aka Investment Bond) may provide a savings environment that's shielded from bankruptcy creditors, so speak with your financial advisor and accountant about your specific needs.

  • The key to this strategy is discipline and the ability to resist temptation, for the next 13 years.

Education - the bill that keeps on growing

Stay connected to good advice for the long haul.  Many financial strategies, like saving for the long-term costs of children's education and an adult's continuing professional education, benefit from a long-term relationship with a financial advisor who you relate to and who understands what you want to achieve.


author pic drew browneDrew Browne is a specialty Financial Risk Advisor working with Small Business Owners & their Families, Dual Income Professional Couples, and diverse families. He's an award-winning writer, speaker, financial adviser and business strategy mentor. His business Sapience Financial Group is committed to using business solutions for good in the community. In 2015 he was certified as a B Corp., and in 2017 was recognised in the inaugural Australian National Businesses of Tomorrow Awards. Today he advises Small Business Owners and their families, on how to protect themselves, from their businesses.  He writes for successful Small Business Owners and Industry publications. You can read his Modern Small Business Leadership Blog here. You can connect with him on LinkedIn Any information provided is general advice only and we have not considered your personal circumstances. Before making any decision on the basis of this advice you should consider if the advice is appropriate for you based on your particular circumstance.

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