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Education and Investment
How to invest for grandchildren - our top tips
Things are easier when you’re a grandparent. You get more of the fun stuff, like sleepovers and lazy afternoons spent reading a favourite book 27 times in a row.
And let’s not forget random gifts for no reason at all. But what about a gift that will pay dividends for both your children and grandchildren? Have you thought about how to invest for your grandchildren for the future? An investment gift for a child that focuses on their educational future is worth considering.
As a grandparent, you’re likely to remember the days when a good education was also a free education. The local public school was probably just as good as a religious or private school. And what university fees?
However, during the late ‘80s, things started to change. With the introduction of the Higher Education Contributions Scheme (HECS), university students had to contribute towards their own tertiary education but the government still paid most of the bill. Today, as we approach the mid-way point of the early 21st century, tertiary education is out of reach for many Australians.
What if there’s something you could do to help your grandchildren (and therefore your own children) when it comes to investing in their educational future.
Luckily, there is. With the spiralling costs of education in Australia, you might want to think about setting up a dedicated investment for your grandchildren’s education.
The real costs of educating a child in Australia today
Futurity conducts regular research into the real costs of education.
For a child born in 2018, the projected costs of school from prep (or pre-school) to the end of Year 12 are:
Government schools - $66,320
Faith based schools - $240,679
Private schools - $475,342
Try our cost of education calculator to see how much your grandchild’s education will cost and for you to get a clear idea of how to invest for your grandchildren.
The impact of university debt on your grandchildren’s life decisions
In the March 2021 issue of the ASG Scholastic magazine, we talked about the Futurity Impact of University Debt Report and some of the uncomfortable facts around the impact of university debt:
- 50% of those surveyed said that their HECS-HELP debt has made an impact on other life decisions such as purchasing a home
- 41% said it had some impact on their ability to buy a car
- 50% of those surveyed said that their HECS-HELP debt has made an impact on other life decisions such as purchasing a home
- 41% said it had some impact on their ability to buy a car
- 30% could not afford medical or dental treatment, sometimes years after graduating
- 28% of respondents said their HECS-HELP debt affected their decision to start a family
- 18% regularly go without food and other necessities.
No grandparent wants their grandchild going hungry for the sake of their education.
What is an Education Bond?
Sometimes people think an Education Bond is the same as an Investment Bond. However, while they do share some similar features, they’re very different. For a start, an Education Bond is saving for the future educational needs of a child or grandchild - it has a specific purpose. An Investment Bond, while also a great investment option, is not specifically designed to be used for a child’s education and therefore doesn’t offer the same tax benefits.
While it’s true both have similar features and tax benefits, an Education Bond has some extra benefits, making it a very popular investment option for those wishing to purposefully invest for their grandchildren. Which we will detail later in this article.
The gift of an investment for a grandchild
While providing for their educational future is a wonderful investment gift for a child or grandchild, there’s no reason you can’t take advantage of some great tax incentives along the way.
So, when you’re investing for grandchildren, what sort of tax incentives can you expect?
Tax free contributions – money deposited directly into an Education Bond can be withdrawn at any time and doesn’t attract any tax.
30% education benefit – On your behalf, Futurity pays tax on the bond’s ongoing investment earnings at a tax rate of up to 30 percent. When you take money out to pay for education, you’ll enjoy the education tax benefit which is a rebate on the tax paid by Futurity. This gives you an extra $30 for every $70 dollars withdrawn.
Are there tax effective ways to pass money to your grandchildren?
There sure are. And it’s one of the very best reasons to invest in an Education Bond.
We all know Wills can be contested. An Education Bond is an investment made outside the proceeds of a Will meaning funds can be passed directly from grandparent to grandchild. A great option if family relationships between parents and their children have broken down, but you still wish to support your grandchildren in their future educational endeavours.
An Education Bond also allows for the appointment of multiple beneficiaries. This ‘Will-like’ tax-effective inheritance means bond earnings will be given to your chosen nominees, on a tax-free basis, in line with your wishes. You can bequeath each grandchild the same amount and have the peace of mind knowing they’ll receive exactly the investment gift you wished for them.
Investing in a Futurity Education Bond has to be the easiest answer to the question ‘how to invest for grandchildren’. And it doesn’t hurt you’re also accessing long term tax benefits for yourself as well.