Accumulate and educate: using investment bonds to save for children's education

The cost of raising children has increased significantly over recent years with an average high-income family’s estimated spending on education per child in the major capital cities now $550,827. Both primary and secondary education costs increased enormously, with preschool and primary education almost doubling in cost and secondary education more than doubling in cost over the previous 5 years.
 
We all know the rising cost of education is expected to continue. According to the Australian Bureau of Statistics’ Household Expenditure Survey, it found that education costs rose by 44 per cent in the 6 years to 2016.
 
Recent studies have shown that 45 per cent of Australian families will educate their children in the private school system. Throw in incidentals like excursions, books, laptops and uniforms.
 
How do you make sure you have the choice of education options when the time comes? The key is to have a plan, start early and consider an investment bond for a tax effective, flexible investment solution. While it may seem crazy to start planning for a child’s education in their infant years, investing in an education is a long-term investment that needs a long-term savings plan. By starting early, you’ll have more money available when you need it.

How an investment bond can help

Investment bonds are a tax-effective way to save for the cost of education as they are a tax paid investment. This means the tax paid on investment earnings is paid by the product provider (Generation Life) at a tax rate up to 30 per cent. Investors don’t need to declare an annual income from their bond in their annual tax returns.

Benefits of a regular savings plan

Investment bonds are flexible investments, and you can choose to make regular contributions from as little as $100 per month. Setting up a direct debit is a way to grow your investment without even having to think about it. Add compound interest to the mix, and you’ll be packing them off to the best school before you know it.

Your friend: compound interest

Described by Albert Einstein as 'the most powerful force in the universe', compound interest is worth understanding if you’re serious about growing your wealth. Simply put, compound interest means that you receive interest not only on your initial investment but also on the prior interest added to your investment. This means that your total return grows exponentially the longer the time frame. The longer you can keep your investment untouched the more your wealth will grow.

 
End results after 18 years

  • Initial $10,000 investment has earned $74,427 (end value of $189,027)
  • Initial $50,000 investment has earned $134,263 (end value of $277,863) 

Assumptions

Investment in a ChildBuilder Investment Bond

  • Regular savings (per week) $100
  • Investment period 18 years
  • Growth investment return p.a. 7.50 per cent

Generation Life Childbuilder Bonds

Generation Life’s ChildBuilder is an ideal way for building dedicated savings to fund education costs. With ChildBuilder’s savings plan feature you can build the investment to a certain level, from which point they begin drawing-down to finance the nominated child’s education costs.

Generation Life is an Australian leader in investment bonds. They are the number one provider for net fund flows over the past 4 years.  Their bonds have received a Highly Recommended Rating* from Zenith Partners for 10 consecutive years and provide an extensive investment menu with choice and quality for investors (Sourced from Generation Life)

To find out how Generation Life’s ChildBuilder bonds can help start saving for a child’s education now, please contact the wealth team.


LEGAL NOTICE: General Advice Only: This document is current at May 2018 unless stated otherwise and does not constitute investment research or an offer or recommendation. The information contained in this document is general information and market commentary only and does not take into account your personal objectives, financial situation or needs and so you should consider its appropriateness having regard to these factors before acting on it. Kelly+Partners recommends that investors seek independent advice before acting on this information. Information provided by third parties has not been independently verified and neither Kelly+Partners nor any other related entity of Kelly+Partners is responsible for the accuracy or completeness of, or endorses, such information. Investments are subject to investment risk, including possible delays in repayment of withdrawal proceeds and loss of income and principal invested. Kelly+Partners does not stand behind or otherwise guarantee the capital value or performance of any fund. Any projections in this document are predictive in character and may be based on incorrect assumptions. Results ultimately achieved may differ materially from the projections. Past performance is not a reliable indicator of future performance.