Investing for Your Child

madmo on 23/01/2019 - 11:48

Hi

I have read a few posts regarding the best place to put aside some of our pay for our child.

My main goal is to save up mainly for my child's private education from high school onwards (another 12 years or so away)with leftovers as a little bonus that the child can use in future for home whatsoever.

I have read to avoid education funds and leaning towards some suggestions of gaining more by putting into our offset account as compared to a kid savings account, and, top up the child's account with the interest savings.

However, I am little confuse on the how do you calculate interest savings for this top up?

Financial

Comments

  • serpserpserp on 23/01/2019 - 11:57
    +1

    Mortgage 4.00%
    High Interest Savings Account 2.85%

    4 - 2.85% = 1.15% <—- What you save on your mortgage every month vs having it in a savings account for your kid.

    Transfer 2.85% of the cash you have in the offset account for your kid every month to his savings account.

    This is a simplistic version but best to run in this way until you have time to figure it out and understand it on your own.

    Good luck.

    • jellykingdom on 23/01/2019 - 12:32
      +6

      Ignoring the obvious lack of taxation on your offset account mortgage savings. So it's a bit higher than that

      You're probably better off literally paying down your home loan with the money, rather than an offset account - no inflation, the home loan packages are usually cheaper if there's no offset account, the property itself increases in value, and you can always redraw later

      • serpserpserp on 23/01/2019 - 19:08

        I did say simplistic. I didn't want to get exact given I don't know OPs situation.

    • madmo on 24/01/2019 - 10:52

      Thanks, was looking for this and will try to figure out the more accurate way when I wrap myself around these maths!

  • bobbified on 23/01/2019 - 12:20
    +9

    I'm not a parent so I wouldn't have a clue, but happy to see a responsible one planning way ahead for their child's future needs.

    • dogboy on 23/01/2019 - 13:59
      -2

      I love this site. The most upvoted comment is someone saying they have no idea with no stake in the game. #moronupvoters

      • Jolakot on 23/01/2019 - 14:10
        +1

        People like honesty

      • bobbified on 23/01/2019 - 14:47
        +1

        Everyone loves to sit around and criticise others. It's good to give credit where it's due (without pretending I know something! lol)

  • FiDad on 23/01/2019 - 12:21

    Also look into investment bonds which might be the best solution for your situation.

    • dogboy on 23/01/2019 - 14:00

      I believe this is the option that the Barefoot investor guy says to do. Money is locked away for ~10 years or whatever term but then you don't pay any capital gains on it when you withdraw.

      • 1ch1go on 23/01/2019 - 14:52
        +1

        You pay a flat 30% tax on earnings for investment bond. Might not be worthwhile unless you are a high income earner.

        • dogboy on 23/01/2019 - 15:31

          Thanks for clarifying that as I didn't realise that was the tax rate.

          • Cabrinha on 23/01/2019 - 16:28

            @dogboy: Plus the fees on those investment bonds just to manage the account can be greater than 60 basis points

  • altomic on 23/01/2019 - 12:24

    When you say private school which school in particular?

    • madmo on 24/01/2019 - 10:53

      Have not decided on this yet. Also depends where we end up living.

  • MikeHunt on 23/01/2019 - 12:27

    just pay down your mortgage (assuming you have one).
    depending on the interest rate and your marginal tax rate you are may be getting a pre-tax return of 6 to 7%+

    • madmo on 24/01/2019 - 10:55

      thanks will keep this in mind!

    • madmo on 24/01/2019 - 10:55

      watched this before ;)

  • nomunny on 23/01/2019 - 12:54
    +9

    Better off sending to a public school in a good area and doing private tutoring as required. Following this, you can use the money saved to assist with university/house deposit.

    • GG57 on 23/01/2019 - 13:17

      I agree; there are other options than a private school education that may be more beneficial for the child.
      But the saving / accrual of funds is a good way to go regardless.

      • [Deactivated] on 23/01/2019 - 13:43

        I agree with those opinions when I see people send their kids to private schools in hopes that the kids get better grades.

        Private schools aren't just about grades, it is the exposure to successful families of their peers. Majority of people, OzBargainers included are very much set in middle class thinking… A prime example is the amount of whinging when exchange rates are poor. The rich do not care because they see opportunity to move the eggs from a basket overseas and now have more AUD to invest.

        I was raised in the public school and tuition environment. Given immense wealth, I admit that I have no creativity nor capability to manage that sort of money, nor manage the financial managers. I'll just be there for the ride.

    • serpserpserp on 23/01/2019 - 19:12
      +1

      I agree to the extent that you have the time as parents to invest into your children's schooling and tutors as well (if needed).

      Also you don't want to be the poor kid at the private school, you end up being an economic outcast of sorts given you can't really afford to do all the extra-curricular things that the better off kids can.

      However in public school, you can save that cash and make uni a breeze for your child or help them get a financial leg up into housing which is probably the easiest route to basic wealth.

      • GG57 on 24/01/2019 - 09:14

        Not all children want to, or have the aptitude, to go to uni. I think the rate is <40%.
        I would like to think that a parent could identify in primary school if their child is academic enough to go in that direction or if another direction might be a better outcome.

        Saving for a child's future is a great idea, but a lot of us default think of a uni education when that isn't always the best option.

    • madmo on 24/01/2019 - 10:56

      We also have our property in a good public school catchment. But rather start saving for private education first and if anything changes, there are more funds for uni/house deposit too.

      • nomunny on 29/01/2019 - 17:25

        Fair enough, but at least put the money into your mortgage. What are the reasons for choosing private?

  • Seraphin7 on 23/01/2019 - 13:06

    There is a lot to cover to answer this questions fully that (1) requires delving into your personal financial circumstances and (2) goes way beyond what could possibly be written here.

    Probably above everything else though, my suggestion would be to start early and establish a regular savings/investment plan. Work out what you want to put away … $5 a week, $50 a week, whatever … and start doing it immediately. Keep that up until your child is high school age, 18, 21, 30 or whatever the end date is and you'll have done a lot for them.

    Get this going now while you work out what investment class is best for you and what tax or other considerations might relevant.

    • madmo on 24/01/2019 - 10:57
      +1

      Thank you, and exactly what we are trying to do :)

  • dasher86 on 23/01/2019 - 13:31

    Some homeloans have the ability to have more than one offset account.
    To keep it simple transfer from one offset to another.
    If you want to do interest choose a period of time quarterly / semi-annually / annually and transfer nominal interest (eg current value on market) x balance of account (child) from one offset to another.
    I wouldn't worry too much on monthly compounding etc.

    • madmo on 24/01/2019 - 10:59

      Yup, have already create multiple offset accounts for this

  • swapsey on 23/01/2019 - 14:36

    Does anyone remember when there were specialised trust funds that allowed you to put money aside for your children's future, and a person would come to your house to pitch it to you, kind of like an insurance salesperson? Those were the good old days.

    EDIT: punctuation

    • GG57 on 23/01/2019 - 14:40

      Yep, they were 'Endowment Policies', payable on a fixed future date (usually a specific birthday) or on death if earlier. From memory, the return was not great.
      I would be surprised if these are still marketed.

  • participant123xyz on 23/01/2019 - 15:53

    We put regular $$$ into managed funds (or could also do ETFs). Put in some regular deposits each month and watch it compound over time. Can obviously choose whatever funds depending on your risk appetite or how much exposure you want to market movement.

    • Cabrinha on 23/01/2019 - 16:25
      +1

      Share market is the best way to invest to compound your interest, managed ETF's are great only look for ones with low fees such as vanguard managed ETF VAS for instance. You also need to way up who will be claiming the interest as part of their taxable income, if its the child they can only earn up to $416 in interest before its taxed at 66% If its in the parents name then you need to consider the capital gains tax payable when you realise the gains and gift the money to the child. Here is some good articles to get you started
      https://www.smh.com.au/money/investing/how-to-invest-for-chi…
      http://www.switzer.com.au/the-experts/paul-rickard/investing… - Part 1
      http://www.switzer.com.au/the-experts/paul-rickard/investing… - Part 2
      http://www.switzer.com.au/the-experts/paul-rickard/investing… - Part 3
      https://cuffelinks.com.au/put-money-away-month-kids/

      • serpserpserp on 23/01/2019 - 19:13

        Too bad if the GFC happens all over again when the child is in grade 6!

        • Cabrinha on 24/01/2019 - 09:28

          Each to their own, if you are investing in quality businesses that continue to make a profit i.e CBA, Westfarmers etc this is would be a fantastic opportunity to buy more of them at a bargain price and increase their long term gains. Since the GFC share price growth is now above where they were when the GFC hit.

          • serpserpserp on 24/01/2019 - 09:41

            @Cabrinha: 11 years is a fair time to recover your share price growth.

            CBA still has a lot of issues to sort out.

            WES future will be interesting to see if they keep selling off their retail assets.

        • Goldenwarrior on 24/01/2019 - 10:01

          Australian companies still payed dividends during the GFC, so while your capital dropped your income was still there.

          With shares its always good to have a buffer and powderkegg so you can act on those once in a lifetime opportunities like the GFC, in other words buy when the opportunity arrises or not be in a place where your forced to sell.

          @madmo Another option is to buy LiC companies such as ARGO, Whitefield, Milton etc. Just make sure they are good quality LIC's. Historically they all pay dividends and you could use the dividends to supplement your child's private education, I doing so keeping the capital and when they are ready you could sell them and help your child out with home deposit/business venture, or keep it as part of your own retirement pla..

          Talk to your accountant, however buy the shares in the name of whichever partner earns the least now and in the future.

          • madmo on 24/01/2019 - 11:26

            @Goldenwarrior: Thanks for the tips and will look into the LICs you suggestd.

            • Cabrinha on 24/01/2019 - 13:31
              +2

              @madmo: Goldenwarrior is correct LIC's are great for a steady income stream. Another to add to the list is AFIC (currently the largest) them and Whitefield also offer something known as Dividend substitution share plan or Bonus substitution share plan. These are a special tax ruling from the ATO that allows them to provide mores shares in lieu of a Dividend of course you forfeit the franking credits but you dont have to claim the extra shares as part of your taxable income. Making them great for kids once they start earning over $416 interest. Here is a link http://www.afi.com.au/_uploads/242155AFIC_IFC_brochure_Aug_2… for more info.

  • [Deactivated] on 23/01/2019 - 20:31
    +1

    What about a kids account. Bankwest 4.75% tax free, if the balance is not too high yet.

  • LakeVostok on 26/01/2019 - 23:16

    maybe look at getting a growth bond from AMP or Lifeplan for your child…if you dont take out the money for 10 years, there is no tax payable on the total sum on maturity (principal + investment earnings from domestic and international shares and property)! You may need to start with $1,000 initially and then contribute $100 or more per month for 10 years or more to get the benefit! I am looking into it myself for my nephew.

  • MercJoke on 30/01/2019 - 09:08

    Find active managers for a trading account with a reliable track records and diversify your funds between them.

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