Planning your finances for 2009: School fees

Typically, the basic fees for a year at a private secondary school work out at over $16,000 a year - and that's before paying for the inevitable extras such as school trips, books and music lessons.

Fees for full time boarders - often a necessity for the internationally mobile - can be twice as much.

Even more horrifying, the cost of a full time university course plus living expenses can be over $50,000 per annum for anywhere between three and six years.

However, with foresight you can use an investment that will provide the growth potential to give you part or even all of the money you need to ensure you can provide the best education for your children.

If capital is available to invest for education expenses (perhaps from generous grandparents!) tax efficient investments and Trusts can be used to maximise the return on this capital. The investment return is partly dependent on the length of time before fees have to be drawn down, so the sooner you start the better.

Long term investment

The benefit of saving for a child's education is that the investment is generally for the longer term (more than 10 years) and very often made on a regular basis.

When saving smaller regular amounts, the best way to invest is through a unit or investment trust. These are pooled investment funds which give access to a wide spread of shares and other securities such as bonds.

These funds may be actively managed - where a fund manager picks individual stocks based on a view of their future potential - or passively, where a manager invests in all the shares that comprise a stock market index, such as the FTSE 100 or the S&P 500.

For example, Mr and Mrs Jones wish to send their daughter to university in 15 years time. They believe that inflation will rise on average by 3% per annum in that time and consequently wish to save for fees that will be in the region of $60,000 per annum.

As such, the total fund they are likely to require is $180,000 to cover these costs. By saving as little as $700 each month, they should reach their target and avoid the day-to-day strain on their future finances.


See also:
Planning your finances for 2009
Planning your finances for 2009: Retirement plans