Start Saving as Early As Possible for Your Kid’s Education

School is officially out for summer, and the VCE class of 2005 has headed to Surfers Paradise for its annual education in bonding, boozing and brawling.

Yet the annual schoolies bash was crashed by Education Minister Brendan Nelson and his posse of party pooper pals in the Federal Government, who this week hit the headlines with their proposed education policies, which are modelled on America’s higher-education system.

Hollywood has always led me to believe that American universities are all about the fun of fraternities, crazy keg parties and random nudie runs through the college square.

The reality, of course, is somewhat different. In the US, most students first do a “generalist degree”, such as arts or humanities, before paying for a postgraduate specialist degree such as law or medicine, which can cost hundreds of thousands of dollars.

Change on the way

Melbourne University is the first education facility to embrace this model, and plans to have its new two-tier degree system available to students by 2010.

Many experts suggest that other universities, having been starved of public funding, will follow suit and eventually implement the user-pays system.

In the past Australia has prided itself on accessible education for everyone.

Here’s a quick history lesson for those readers who think Gough Whitlam is a member of a rock band, and assume “the dismissal” must have something to do with Mark Holden and Australian Idol.

In the ’70s, the Government picked up the tab for students who chose to go to university, but back then there were substantially fewer students sitting on the campus lawn.

Now, with a more deregulated labour market and employers demanding a more highly skilled workforce, most people are choosing tertiary education to edge their way up the ladder.

Today the Government still wears much of the cost, but just like superannuation, the responsibility is being pushed back on to us.<

Start saving

The only time I protested at university was when the student unions stopped free beer on Fridays, so I’m not exactly the poster boy for the education unions, many of which still passionately believe that education should be free.

My view is that the bulk of students choose tertiary education as a means of improving their chances in their chosen career. Therefore they should shoulder the responsibility of paying for it.

All of this throws up a curve ball into parents’ plans. According to a survey by the CBA, 60 per cent of parents haven’t started saving for their kids’ education – though the same survey states they rate it as one of their most important goals.

It shouldn’t come as a surprise, given that household debt is running at record highs, and our savings rate is in negative territory. Perhaps the most heavily indebted generation in history has forgotten that Harvey Norman doesn’t offer 30-year interest-free offers on a law degree.

As we move further into a user-pays education, the old habit of throwing spare shrapnel in a piggy bank for your kids’ education will be about as successful as expecting the tooth fairy to pay your dental bill.

Parents have a simple choice: either have a simple kid, or get started.

Savings schemes

There are various schemes designed to assist in the process. The CBA has long had the “dollarmite” account, whereby primary school children deposit small amounts of money into a savings account.

If I was a cynic (and I am), I would suggest that perhaps this program has more to do with collecting a database of the names of the next generation to market to than meeting the growing gap of education savings of families. Besides, investing long-term savings for a child into a savings account, regardless of the interest rate on offer, isn’t the best place to grow the money.

Embarking on education

There are also schemes designed specifically to meet the costs of future education.

Many of these products are offered by friendly societies, or insurance companies in the form of bonds.

While some of these products have the advantages of tax breaks if used to invest for your child, in some cases the benefits can be offset by a combination of high fees and exit penalties should your child decide to become a mechanic rather than a medic.

Often the best way for families to prepare to meet increasing education costs is to first focus on their financial situation by paying off the mortgage and other debts, and starting a small investing program. This puts them in a strong financial situation for when the big education bills start coming in the future.

Being broke at university, and surviving on a concoction of two-minute noodles and home brew, is a rite of passage.

In the future, however, many young graduates may find that their real education starts the first day of their working life, when they struggle under the strain of a mountain of debt.

Tread your own path!