With more than 60% of school leavers in Ireland now moving on to third level education, the need for parents to have a savings fund in place for this probability has gained even more importance.

 

Cost

Some sources state that it costs on average €10,000 per annum to send a child to a college or university. With the maximum grant for students falling well short of this, I believe it is essential to be prepared for this scenario if and when it arises. The easiest way to be ready for this is to start saving well in advance instead of leaving it until the last minute and putting a huge strain on your finances.

 

Funding

There are a number of ways of accumulating an education fund. The most well known is through a regular savings account with a bank. However, with deposit rates at an all time low, I don’t believe this is necessarily the best way to save for the long term. The main reason being inflation. Over time, inflation will reduce the real value of your savings. For example, if inflation ran at a pretty modest average of 2% per annum for 10 years, then the actual value of your money would be reduced by approximately 20% over that period. Even if you were to receive 1% interest per annum, the real return is still minus 10% after 10 years. And this is before you factor DIRT tax into the equation!

 

In light of this, increasing numbers of parents are taking out regular savings policies with life assurance companies. These potentially offer significantly better returns in the long term. Regular savings policies involve buying units in a particular fund or funds. They tend to be very flexible in terms of how they are invested. Yes, there may be some risk involved but what many of you may not know is that you get to pick the fund you want to invest in based on the level of risk, if any, you wish to take. How the policy is invested can usually be amended a number of times per annum free of charge. Therefore, I believe getting good investment advice is essential.

 

An additional benefit to paying premiums on a regular basis is Euro-cost averaging. This means that if the fund unit price drops, you buy more units with your money. When the fund unit price rises again you should see greater investment growth. So, the downside has an upside!

 

Gift Tax Exemption

Something also worth considering is using your annual gift tax exemption of €3,000. To avail of this, the savings policy would be assigned to your child when it is established and the child could then access the proceeds aged 18. The proceeds of the plan would not then eat into the inheritance tax exemption limit for your children.

 

If you would like more information on regular savings plans or wish to discuss educational savings options, please give me a call on 068 31777 or 087 9308181. Alternatively, you can email me at gerard@proactivefinance.ie.

 

Gerard Ward

22nd February 2019