Jonathan Cattana School Fees 2
The game plan
Step 1
Identify the school you would like your child to attend and what years you would like them to attend.
Step 2
Calculate the total cost for the period of time your child will be in a private school—tuition fees and all the extras—assuming an increase in fees each year of 7% and an increase in inflation each year of 3.5%.
For example, using our 2006 school tuition fee costs from our table in Chapter 3, the total fees for a child starting Year 1 in a Melbourne-based private school in 2007 would be $192,900.
Year Fees
Year 1 2007 $12,000
Year 2 2008 $12,000
Year 3 2009 $13,000
Year 4 2010 $14,000
Year 5 2011 $15,400
Year 6 2012 $15,500
Year 7 2013 $17,000
Year 8 2014 $18,000
Year 9 2015 $18,500
Year 10 2016 $18,500
Year 11 2017 $19,000
Year 12 2018 $20,000
TOTALS $192,900
So, the average cost of private school tuition fees for a child beginning Year 1 in 2007 and completing Year 12 in 2018 (assuming an average increase of 7% per year—not taking into account inflation ) would be $341,000 .
However, if your child started at a private school from Year 8 in 2007 and went through to Year 12, total tuition fees = $125,500
If your child was starts school in Year 1 in 2011 and goes through to Year 12, total tuition fees = $446,900 .
Again, if your child started at a private school from Year 8 in 2011 and went through to Year 12, total tuition fees = $164,500
Again, see my online calculator at www.privateschoolfees.com.au to assist you with these calculations. It will take into account the indexation for inflation and school fee rises for whatever year your child begins school.
Step 3
Choose your asset class and investment strategy that applies to your situation.
Strategy 1 – A simple savings plan
That’s right. Hate to keep reminding everyone of the investment basics but for some reason most people do not know how to save. Australians have had a negative savings pattern for the last 10 years. We are simply not saving and we are spending far too much on consumables.
This strategy requires you to start early—as soon as your child is born. A savings plan is the simplest way to save money. The best way to do this is to create an automatic payment that comes out of your everyday account once a month, straight after pay day, and into your chosen investment.
You will be what they refer to as ‘paying yourself first’.
What if I have no savings at all?
However, if you have nothing saved at all and you need to start from the beginning, your best option is to invest in a managed fund. It is the same principleal as a savings account, you organise a direct debit of a set amount to come out of your account each month that goes into the managed fund.
Which managed fund?
As mentioned previously, the best shares to buy are Industrial shares, therefore the best managed fund to choose is an industrial shares managed fund that pays you as many franking credits as possible.
A note:
• Don’t pay entry fees.
• Do consider using two or three different managed funds, and diversify your risk with each fund manager.
Direct investing
If you have a lump sum and are considering a tailored direct share portfolio, you will need between 15 and 25 stocks, seeking advice would be strongly recommended. There is a lot to consider and learn.
Where possible, invest any additional cash from work, such as bonuses or an inheritance, straight into the savings plan. Ensure that the income from the investment is being reinvested so that it’s compounding and the franking credits are returned back to the plan so that the income stream is added to the overall saved amount.
If you require a savings calculator see www.infochoice.com.au and look under the banking section. Please note, this calculator gives an indication only. An exact figure requires advice from a financial adviser.
It’s amazing how easy this strategy is, but how many people have not yet this plan into action.
Let’s look at a case study.
Case study 1
Names Mary and Phil Evans live in Melbourne
Number of children They have one daughter, Theresa, who will begin school in 2011
Age Theresa turns 2 at the end of 2007
Total family income per annum $110,000
Employment Phil has his own business and seven employees at his manufacturing plant. Mary is an architect and works from home part-time.
Education strategy The goal is to send her to a private school from kindergarten to Year 12.
Strategy choice Simple savings plan
Current savings set aside for schooling $20,000
Figures supplied by MLC Limited
Step 1
Identify the school
Mary and Phil have chosen a Catholic private school in the suburbs of Melbourne and wants to send herim there from kindergarten, all the way through to Year 12.
Step 2
Calculate the cost of tuition and extras
Theresa’s date of birth is 31 November 2005 and she will start kindergarten when she is five years old in January 2011. Theresa will finish Year 12 in 2023.
From the research they’ve done, Mary and Phil have found out that currently the tuition fees for the school are $24,500 a year and they have worked out that the total fees will be $328,000 .
Step 3*
Choose the asset class
Because Mary and Phil have already saved $20,000 for Theresa’s tuition fees, they have chosen to make adopt a regular savings plan and invest in industrial shares, which have a growth rate of 5%, will provide income of 5% and a franking credit rebate on their portfolio of industrial shares of 80%.
Based on these assumptions, the amount that is required to save every month is $870 .
Note: If this is the only child for Mary and Phil, they may wish to consider to stop saving in year 2023 and then sell the down their investment portfolio.
However, by then, Mary and Phil may decide to continue on with the savings plan for Theresa’s university fees or other needs.
*Assumptions
Investment period is 16 years.
Mary and Phil start investing for their child’s education in January 2007.
They pay the required school fees annually in advance at the beginning of the school year.
They invest in an Australian share fund generating a total return of 8.5% pa (split 3% income and 5.5% growth) with franking on the income at 75%. [This is consistent with the long term projected returns for an Australian share fund from MLC’s Investment Management Division.
The Australian share fund is held in Mary’s name and she is subject to tax at 31.5% (including Medicare levy). All figures are after income tax.