It is natural for parents to want to give their children a good start in life, and often parents will have a financial goal of saving for their children’s education. There are two key questions to be asked:
Is it a good idea to save for your children’s education?
There are many ways you can help children get ahead. You can help cover the cost of a private or tertiary education, overseas study, travel, setting up a business, buying a home, getting married or starting a family. Families have limited financial resources, so decide whether paying for education costs is the best way to help. The answer may be different for each child. For example, not every child will either want or be able to attend university. Student loans are interest free if the student doesn’t move overseas, so money is better invested than spent on study costs.
What is the best way to save for children?
If you have a mortgage or other debts, savings should usually be applied to reducing debt as a first priority. One way to do this, while still earmarking funds for your children, is to use an offset facility, which allows you to offset funds in a savings account against the balance of your mortgage. The mortgage interest is then charged on the net amount. Not all banks offer this facility. If you have no debts, you can save into a diversified investment fund. Choose a fund that is appropriate for your investment time frame. There are investment products which focus specifically on children’s education, with marketing material designed to appeal to parents at an emotional level through their desire to help their children These have terms and conditions which limit the benefits of the fund, so be careful to read the fine print.
Liz Koh is an Authorised Financial Adviser. The advice given here is general and does not constitute specific advice to any person. A disclosure statement can be obtained free of charge by calling 0800 273 847. For free eBooks, go to www.moneymax.co.nz and www.moneymaxcoach.com