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Should you save for your child's tertiary education?

Should you save for your child's tertiary education?

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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Learn more about savings accounts

How to open a savings account for my child?

Some banks and financial institutions allow parents to open a bank account for their child as soon as it is born, and start depositing funds to go towards the child’s future.

Children’s savings accounts generally don’t have fees, and are structured to help develop positive financial habits by limiting withdrawals, encouraging regular deposits, and earning interest on the savings, similarly to standard savings accounts.

What is a good interest rate for a savings account?

A good rule of thumb to keep in mind with savings accounts is to look for a rate that is higher than the CPI inflation rate. This number is constantly changing, so check the Reserve Bank of Australia’s page. If you aren’t earning interest above this then the value of your money will go backwards over time.

How to make money with a savings account?

Savings accounts make you money by earning interest on your savings. The more money you deposit, the longer you leave it in the account, and the higher the account’s interest rate, the more interest you’ll be paid by the bank or financial institution, and the more your wealth will grow.

To make sure your savings account makes money and doesn’t lose money, it’s important to maintain a large enough minimum balance that the annual interest earned exceeds any annual fees charged on the account.

Can you have multiple ING savings accounts?

Yes, you can open up to nine accounts with ING at any particular time. If you’re saving money for various goals, such as buying a car or taking a holiday, you can name each of your multiple ING savings accounts differently.

To get a Savings Maximiser account, you’ll need to deposit more than $1000 every month and make at least five additional purchases. If you also want to grow your savings, from 1st March 2021, you can earn up to 1.35 per cent per annum variable interest on one account with a balance of up to $100,000 when you also maintain an Orange Everyday account.

With ING, multiple savings accounts can help keep track of all your savings goals. All the accounts offer flexible withdrawals where you can withdraw as low or as high as you want without impacting your earning interest rate. However, you can only earn the bonus interest on one account. To apply for a Savings Maximiser account, you can visit ingdirect.com.au.