THERE is no doubt that inflation, rising interest rates and cost of living pressures are biting into household budgets and, as one school year ends, the cost of education for the school year yet to begin is already preying on the minds of many families. Grandparents, it seems, are helping to ease that financial burden and financial advisers are reporting strong demand for investment options that not only allow funds to cover the costs of schooling but provide financial benefits for the investor as well.
Foresters Financial recently launched a new education bond aimed at helping families fund a wide range of education expenses beyond school fees, from text books, sports equipment and excursions to university accommodation and more.
With reports estimating that the cost of educating a child through primary and high school in South East Queensland is close to $70,000 in a government school (outside the Brisbane metro area) and closer to $200,000 in some independent schools, it’s clear to see why grandparents (and parents) are looking for ways to help fund the expenses.
According to the Futurity Investment Group Cost of Education Index 2023, ancillary costs above and beyond school fees (such as textbooks, uniforms, technology, excursions) can account for more than half the annual cost of sending a child to an independent school, or as much as 96 per cent of the cost of sending a child to a government school, often leading to “cost shock” for families entering the school system for the first time.
Education bonds are an investment product specifically designed to help meet the cost of education and have unique tax features not available through other traditional savings and investment products, and they carry strong legal protections and security measures under Commonwealth legislation.
According to Jen Liakopoulos, education bond specialist at Foresters Financial, an education bond is basically a “scholarship plan” under Australian Tax Law and when earnings are withdrawn to pay education costs, investors receive a tax deduction.
They are a long-term investment and basically a hybrid combination of investment bond and insurance policy generally most tax-effective when held for 10 years.
However, Liakopoulos said that if the investor’s needs change over time, capital contributions can be withdrawn tax free at any time.
“As long-term, growth investments, education bonds can help parents and grandparents attain financial self-sufficiency for their lifelong education goals – whether for themselves or their families.
Anne Graham, chief executive and senior financial planner at Story Wealth, told the Australian Financial Review recently that grandparents tend to be the primary buyers of education bonds.
“Grandparents feel for their kids because they’ve got mortgages and financially they may feel they aren’t in as good a spot as they’d like to be.”
