Shocked by education costs? – why anxiety about your child’s education can make you vulnerable

We are often reminded about the cost of educating our children at this time of year – not just because we’re paying for school books, uniforms and fees, but by media reports about the high costs of education. These cost estimates are often intended to shock.

I recently checked out the education cost estimates calculator on the Australian Scholarships Group’s (ASG) website.  In today’s figures, the cost for a student doing a university course similar to one our daughter recently completed was $37,395 per year for a student living away from home.  We paid about $4,500 per year.

At the end of 2014, our daughter completed the final year of her Masters degree at Sydney University.  We live in Melbourne.  She lived in shared housing in Sydney.  In total we paid less than $2,000 for set-up costs in 2013 (bond, rent in advance, bedroom furniture) and less than $3,500 each year to subsidise her living expenses.  All other expenses, including text books and equipment, were covered by her fortnightly Centrelink youth allowance income, and a total of only 75 hours employment she obtained during 2013.

Generally youth allowance isn’t paid to students under 22 unless they need to study a considerable distance from home so our situation is not typical.  Of course everyone’s circumstances and needs are different and some parents would like to be able to provide more financial help, and to pay fees up-front rather than have their child incur a HECS debt which our daughter will repay from her future salary.

While the ASG calculator is intended as a guide, it estimates education costs without accounting for the option to pay off HECS or for any income entitlement from Centrelink – and it includes the costs of supporting a university student living at home, including food and groceries. This illustrates how important it is to think carefully about any financial decisions you make now, not to be overwhelmed by the hype – and not to rely on an organisation that is trying to sell you an investment product to estimate how much you might need for university (or anything else such as retirement).

Saving for your children’s education

Of course education can be expensive – particularly for children in the private system, and I’m not suggesting that planning is a bad idea.

ASIC and CHOICE suggest that parents consider a range of options to plan for education costs, including using funds to pay your mortgage off early (thereby freeing up money for education later on) or using a mortgage offset account that you can draw on in the future.

Think carefully before locking yourself into schemes that may not be flexible enough to respond to changing circumstances in the future.  Your family’s needs can change with divorce, health issues, the need to pay-down debt – or even financial opportunities that arise.

Education bonds (such as those provided by ASG) are one option although they do lack flexibility and in the case of ASG, in the event that a child doesn’t go on to higher education, the contributions are repaid but the earnings stay in the pool for the benefit of other students.

There are also time restrictions.  A student who takes three years post-secondary to start a university course (as our daughter did) may be ineligible, and would benefit from having access to funds in an off-set account or more flexible investment.

“Barefoot Investor”, Scott Pape sees some benefits in education bonds, but he has criticised ASG for an “antiquated system that financially penalises your kid if they choose not to go on to higher education – a trap that many well meaning parents don’t realise until it’s too late.”

Parental anxiety makes us vulnerable as consumers

Parental anxiety about their child’s education can make us vulnerable to selling methods that exploit the desire to do the best for our children.  For example, research undertaken by Deakin University and Consumer Action Law Centre studied the psychological drivers behind parents who paid up to $10,000 for mathematics software that was sold by sales people who visited their homes.  Many clients of  Consumer Action found that their children  stopped using the software after a few weeks.  Building parental anxiety was a key driver to sales, and those who purchased tended to be those who were most anxious about their children’s schooling.

The study did not consider the sale of education bonds, however the findings about parental anxiety could be relevant to the decision some parents make to invest.  In relation to the sale of educational software the research found that ‘in-home salespeople attempt to manipulate parents’ emotions by stimulating their concern and anxiety regarding their children’s education, and their future employment prospects. Further, parents’ concern about their ability to help their children enhances the effectiveness of this approach. The technique of activating guilt among parents was also found to be an important element of the success of the sales process.”

You can view a 15 minute film “Shutting the Gates” based on this research.

Subtle selling techniques can place parents in a position where they feel that by refusing the offer, they are demonstrating  disinterest in their children’s success – which they may instinctively reject by signing on the dotted line.

Talk to friends and family about the financial challenges that they faced as their children grew up, and ask what expenses they would have liked to have planned for.

Think through the options, and consider your overall financial plan – but above all don’t let the cost of future education create anxiety – it may make you vulnerable to investment decisions you later regret.

15/1/15  Since this post was published the Independent Schools Council of Australia (ISCA) has warned that “some school fee estimates are not representative of the vast majority of independent schools”, citing ASG 2015 estimates.

In an article in The Educator, ISCA executive director, Colette Coleman, said “While ASG admit their school fee figures ‘represent the upper ranges that parents can reasonably expect to pay,’ they neglect to show just how small a proportion of Australia’s Independent schools are actually charging the kind of fees that could contribute to those sort of cumulative costs”.  She advises parents to do their own research and check out the fees at their school of choice.

 

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