The importance of saving for your children’s education, especially third-level, cannot be stressed enough, managing director of HerMoney.ie, Carol Brick says.
“By starting a savings plan early, well before your child begins primary school, even from birth in my opinion, you greatly reduce the possibility of taking on high debt to pay for his or her higher education later on.
“We advise our clients to try to save their monthly children’s allowance from birth and increase it later to safely achieve the amount of capital required to fund primary, secondary and third-level education costs for each child,” Brick says.
Parents of children who must leave home in order to go to college face an annual bill of well over €12,000, depending on the university.
An annual UCD survey examines all relative costs in relation to third-level universities in Ireland including fees, rent, utilities, food, travel, books, clothes, mobile phone and social-related spending. According to the survey, costs range from €14,133 at UL to €18,360 a year in UCD.
“If for example, we look at properly saving in advance for a student to attend a three-year degree in UCD – you would be looking at saving an amount of at least €202.17 per month from birth. So basically, the monthly children’s allowance topped with a further €60, which is quite a surprise to most parents,” says Brick.
“The first step is to establish a disciplined and frequent approach to the savings challenge, decide on a monthly amount depending on your child’s age and stage of education and get that direct debit set up as soon as possible,” she adds.
There are typically three ways of catering for your children’s education expenses, Fiona Haughey of Davy says.
These are: meeting costs through your regular income – however, if you are due to retire just as your kids are starting college this can prove problematic; regular savings – you can then set aside a portion of your monthly/annual income to gradually build an education fund or for those in a position where you have funds readily available, you can set aside a lump sum.
‘Education costs inflate’
“It’s important to note that education costs usually inflate at quite a high rate. Therefore, saving via cash in a low-deposit-rate environment often results in your savings losing its purchasing power by the time it is required” says Haughey.
“Depending on each family’s circumstances and goals, we can help implement an investment strategy that suits. We offer a range of Global Portfolio Strategies (GPS) catered to varying client risk profiles – these funds are ‘gross roll up’, meaning your savings can grow without tax being applied for up to eight years (or on exit) and then a fund tax is applied. These tend to be popular with our clients saving for these important expenses,” she adds.
Brick says there are a number of investment vehicles available at all levels of risk for regular savings.
“Our most popular options available are multi-asset investment funds, available from the various life companies, which spread your money across a number of different asset types such as shares, property, bonds and commodities – basically assets which have the potential to grow faster than inflation.
“Investing in multi-asset funds means that the value of your investment has the opportunity to generate higher return over the longer term.
“There are on average five or six different multi-asset funds available which come with various levels of risk attached and it is our job as financial advisers to properly evaluate and ascertain each individual client separately and then match them to a suitable portfolio,” she adds.