Finance Matters Article – Thursday 3rd March

Do you have to plan for your children’s future?

Most Parents dream of giving their children the best possible education and future. Whether this dream includes university, college or a technical school, one thing is for certain: education funding and it certainly isn’t free.

The cost of education is rising annually. I meet with many parents who are concerned about whether they will be able to afford to support their children’s education. It is therefore vitally important that if you want to be able to afford to send your children to further their education or support their varied third level interests, you need to start planning ahead. The sooner you start the easier it will be closer to the time.

How much does a third level education cost?

A recent study found that the cost of sending each child away to college is about €1,200 per month, taking into account travel, accommodation, food and living expenses. This does not include the actual cost of the course, which will vary greatly between institutions and course-type.

Assuming an annual cost of €14,400 over a 4-year course, that’s a €57,600 war chest that needs to be at-hand. Multiply that by a few more children and you can see that it is imperative that Parents who want to be able to afford to support their children’s education need to plan well in advance.

The above costs are based on current prices, however should you take into account inflation and cost growth of 2% per annum over the next 13 years, the annual cost requirement in future terms is a more staggering €18,627 per annum.

What are the best ways to save for your child’s university fund?

  1. Create a Plan!

There are various education plans to help you to finance your children’s higher education. However, most importantly, the first port of call would be to calculate the potential costs per child, multiply them by the number of children you have and inflate those costs for the years before they attend college, usually at 18 years of age. A good financial planner should be able to assist you in calculating the sums involved, however the costs mentioned previously will provide you with a good starting point.

  1. Should you plan monthly or annually?

Once you have the math’s completed, you then need to decide if you want to begin saving on a monthly basis or annually. A lot will depend on your household cash-flow and what suits some people, may not suit others.

Most of my clients prepare to save on a regular, monthly basis into their child education savings plans. It meets with most families’ cash-flow requirements after paying off the usual round of monthly bills (mortgage, food, utility bills etc.), and takes away the onus of making a decision annually when finances might be tight at that point in time (i.e. before Christmas, summer holidays). For example, most customers allocate their monthly child benefit payment along with some monthly savings in order to create the fund.

I have other customers who might expect to receive a bonus on annual basis and therefore it suits them from a cash-flow perspective to save on an annual basis. Start with an option that suits your cash-flow best, and if things change you can adapt the plan payment periods going-forward.

  1. Should you invest your funds or keep them on deposit?

There are many ways to start saving for your children’s education. You can start a regular savings account at your local Credit Union, Bank or receive more detailed, independent advice from your local Certified Financial Planner (CFP). At the current time, interest rates are at historic lows and therefore customers are not being rewarded for keeping their hard earned savings on deposit. A CFP will discuss a range of options with you.

Depending on your appetite for risk and the term until your child reaches college age, you may wish to construct a more diversified plan. A solid, global spread should ensure that over the medium-longer term this type of strategy will outperform mere cash deposits and make these funds work harder for you and your child.

Whatever option you choose, you need to start planning today.

Saving for your child’s education is typically a long-term goal to be achieved. As the cost of a university education is set to rise, the need for parents to carefully plan ahead becomes even more apparent. I would recommend that you speak to your local Certified Financial Planner – they will help you organize the most appropriate structure for your children’s education savings plan.

Gerard O’Brien LL.B LL.M CFP®QFA is the Owner of Heritage Wealth, a Financial Planning practice based in Main Street, Midleton, Cork. For more information, contact Gerard at gerard@heritagewealth.ie www.heritagewealth.ie