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Should you save for your child’s tertiary education?


Kate Wick

By Kate Wick

4 min read

Tertiary education is becoming increasingly important as Australia becomes a more competitive and cosmopolitan society. Without a diploma or degree, many young people find themselves struggling to break into the job market or earn a decent salary or wage. But how can you help your child in the future?

According to OECD Indicators from 2014, there are significant earning premiums for those with tertiary qualifications. People who have attained at least an upper secondary school qualification also did decidedly better than those who did not complete school. While none of this flies in the face of common sense, it is reassuring to know that a degree or diploma still represents the benefit that it always has.

What about student loans?

Student loans are a useful resource for covering tuition and associated fees, but can come at a hefty cost. Students that graduate with large amounts of debt will soon find the Australian Taxation Office taking a slice out of their pay cheque. There are three ways in which it is preferable to save up for study costs, rather than rely on future income to cover it.

1. A dollar today is worth more than a dollar tomorrow

If you and your child manage to save up ahead of time for their tertiary expenses, you'll find that every dollar you put away is worth more than a dollar in the future. Economists call this the discount rate. Mark Harrison, in his visiting research paper entitled Valuing the Future: the social discount rate in cost-benefit analysis, noted that combining the interest-earning capacity of money now with increasing costs in the future, results in today's money being worth more than tomorrow's. 

While you might not be able to save up enough to cover all of your child's tertiary expenses, a mixture of student debt and savings is better than racking up a huge bill for study.

2. Inflation

As the cost of living increases, your children will pay more and more for everyday services and goods that they need. This also includes education. By setting aside some money now, you can mitigate the effects of inflation by creating a buffer for your children. While some might argue that sheltering them from the real world may not do them any good, giving them the best possible start is certainly of benefit in an increasingly competitive world.

You know how hard it is to avoid accumulating too much debt, including car loans and other things that you want to pay off as soon as possible. Imagine the pressure on your children as these costs increase in the future. Household indebtedness is at levels your parents likely never saw at your age, according to the Reserve Bank of Australia. While there is potential for this to improve, putting a safety net in place to help your children avoid crippling amounts of debt is a worthwhile goal. 

While there is no interest payable on HELP loans, indexation matches the loan to the rate of inflation every financial year. According to Study Assist this is to keep the loan figures in real terms, but essentially what this means for your child is that their loan will increase at the rate of inflation for the lifetime of the loan.

3. Your savings account could benefit too

There are several ways to structure savings accounts that provide ancillary benefits. While you might put away a small sum every week towards your child's university fees, the interest that accumulates on the total could either add to that sum, or be put towards another savings goal. If the interest rate does not favour savings accounts at the time, you might consider using an offset account to hold these funds, helping you to reduce the interest payable on your home loan.

There are many ways in which saving can help you and your family now and in the future. Providing a clear goal which everyone works towards is certainly a healthy way to start off on your savings journey, and what better aim than investing in furthering your children's potential?

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