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Education lays a firm foundation


Education lays a firm foundation

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									                                                                           NORTH SHORE TIMES, Wednesday, May 31, 2006   17


FINANCE        with   Sorab M Daver

Education lays a firm foundation
QUESTION: We’ve just had a baby and would
like to set up an education savings plan for
her to pay for private school or university
   We are confused with the choice of
products out there.
   Which one would be most suitable for us?
Are there any other alternative invest-

 ANSWER: We are fortunate that Australia
 has one of the finest systems of higher
 education in the world and many graduates
 from Australian universities are much
 sought after, both here and overseas.
    But Australia is very much a part of the
 global economy and our children will
 require a higher level of quality education
 and more skills and training, if they are to
 continue to successfully compete and en-
 sure job success.
    Private school and a university education
 could certainly give them a head start but
 the fees involved are significant – if you
 have more than one child, the cost over time
 could be almost as much, if not more, as
 paying offa home loan.                              If you prefer an approach where you are
    While university students have access to     more in control, an alternative strategy
 the HECS debt, some parents wish to avoid       could involve investing in an approximate
 their children commencing their working         mix ofl ong-term managed funds.
 life with a significant debt.
    Hence, for most people, especially those        These are flexible and comparatively
 with existing financial commitments such         more transparent, but tend to offer no
 as home and/or business loans, paying           guarantees – your return is subject to the
 private school fees for their children will     performance of the underlying investment.
 involve significant personal sacrifices.             Depending on your surplus cash flow and
    This means that you need to be particu-      other factors, you could also consider a long
 larly diligent to ensure that the educational   term instalment gearing strategy – ie invest
savings plan that you choose matches your        a set amount per month into appropriate
requirements.                                    managed funds, and borrow an equivalent
    This could depend on a variety off actors,    amount into the same mix off unds via a
namely: What are the investment risks? If        margin loan.
the plan comes with some kind of guaran-            Regardless of the strategy or product that
tee, then this could be at the expense of a      you choose, ensure that you seek pro-
lower long-term return. What are the tax         fessional advice and read and understand
implications? Ifi t is a tax paid investment      the Product Disclosure Statement, includ-
(ie the tax has already been paid and you or     ing the fine print.
your child get the final amount tax free)            In reality, saving for a child’s education is
then you may wish to compare the tax rate        not dissimilar to saving for any other long
of the savings plan, with your own personal      term goal.
tax rate, to ensure that you are not                The best way to save for your child’s
disadvantaged. Do you wish to opt for a plan     future would be to choose an investment
which encourages forced savings, or do you       strategy that matches your objectives and
                                                 commence this savings plan as early as you
prefer a more flexible approach? Are there
any penalties for stopping the plan before
the expiry date? What are the fees and
                                                 » Sorab M Daver is a certified financial planner,
charges and what is the commission paid to         JP and authorised representative of Financial
the person who sells or recommends this            Lifestyle Solutions. Professional advice should
product to you?                                    be sought before making decisions. Email your
                                                   questions to

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