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Educating your children is a major expense—the sooner you start saving for it the better

Many parents nevertheless go faint when they see the cost of school and university fees—just how much depends on the schools and universities and the countries in which they choose to educate their offspring. Many par­ents pay school fees on an ad hoc basis when the bills arrive on the doormat. About half of all parents use their general savings whereas of the other half, around a third use sav­ings from a special education saving account, 28 percent use income from investments, while 21 percent take a part-time job to pay the fees and 14 percent use a personal loan or draw down on their flexible mortgage to meet the cost.

Only 40 percent of parents and grandparents are saving for education in advance but almost all admit that their savings fall short with half of the savers putting aside less than $100 a month or $1,200 a year.

Having the money available when children start school is a better option than borrowing to pay school fees. Paying interest on the borrowings can sometimes double the amount you would pay if you had saved the money.

Over the past 15 years, school fees have increased at two-and-a-half times the inflation rate. Even Government schools bring with them significant costs, from uniforms, excursions and sporting equipment to textbooks, travel expenses and music lessons. The key to funding your child’s education is to start early and save regularly.

Education saving plans

These saving plans are a tax-effective way to save that en­courages the discipline of regular saving and not spend­ing. The downside is that these plans have relatively high fees, particularly for conservative investment options.

Managed funds

If you choose a diversified fund with investments in fixed interest, cash, property and shares, you can spread the risk and take advantage of long-term growth investments such as property and shares. Most managed funds do not allow investments to be held in a child’s name, but will accept an application if an adult acts as trustee for the child.

Mortgage drawdown

The downside of drawing down off your mortgage is that most people love to see their home loan balance going down, rather than up. Depending on your home country’s loan interest rate, it could be substantial. If however, you refinance your property in Japanese Yen, the rate will be circa two percent and therefore provide a substantial saving on your budget.

Prepay your school fees

Some private schools allow you to pre-pay your school fees up to 10 years in advance. With school fees typi­cally increasing at seven percent per annum over the past 15 years, the ability to save money by prepaying fees a number of years ahead becomes significant. You can make regular payments or one-off payments. If you leave the school the contributions are refundable. Schools find the prepayment option attractive because it can reduce the risk of bad debts and bring their cash flow forward.