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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When even a free extended warranty is overpriced

Consumer Action Law Centre recently warned about virtually worthless warranties that consumers sometimes purchase when taking out a loan or buying a car.

If you have paid for a warranty, or any other type of “add-on insurance”  see how you can demand a refund.

I wrote recently about a case where the tribunal ordered a car dealer to refund the price ($14,500) paid for a used car to the consumer (‘G’).

Another part of G’s story shows how even a ‘free’ warranty can cause harm by:

  • appearing to add value to a car,
  • conditions that may add to consumer costs, and
  • giving the purchaser false confidence in the purchase.

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Consumer Guarantees and Used Cars

(This is not legal advice.  There are no written reasons for the VCAT decision so I am relying on notes I took during the hearing).

A Victorian consumer recently received a full refund of the price he paid for a 4-year-old car which developed a serious problem 12 months after purchase.

This outcome is not very common, not least because there are often evidentiary issues in these cases.  However, it illustrates how the right to a refund or repair of faulty goods clearly extends to used cars – and can apply years after the end of any manufacturer’s warranty.

G bought the used Volkswagen Golf from a VW dealer in February 2014 for $14,500.  He had the car just under a year when it developed a serious problem, requiring replacement of the engine.  The quote for repair was $15,540.  Volkswagen Australia offered to pay half the cost of the part, as a ‘good will’ gesture.  However, this would have left G with a bill of $9,200.

G took his case against the VW dealer to the Victorian Civil and Administrative Tribunal (VCAT).

Consumer Guarantees

When anyone buys goods or services, those goods or services must meet certain standards called ‘guarantees’ under the Australian Consumer Law.

Both manufactures and sellers are responsible for consumer guarantees. However, consumers often believe (wrongly) that any claim they have for faulty goods must be made against the manufacturer.

It is often easier and preferable to approach sellers when claiming consumer guarantees, particularly because where there is a major fault, the seller will be obliged to provide a refund or replacement. The seller can’t refuse to honour the guarantee or insist that the consumer claim from the manufacturer.  Continue reading

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Dodgy marketing of college courses

Over the last six months I’ve spent time on the phone with dodgy salespeople – I even had someone visit my home – to try to uncover which training college was at the bottom of misleading telemarketing calls.

The marketing of college courses is out of control and will remain so, despite some attempts at stricter guidelines and obligations on colleges to rein in their sales agents.

The industry, and government, may suggest we wait to see if recent initiatives improve the conduct of sales agents work.  However, I believe we will continue to see significant problems until all telemarketing and door-to-door selling of courses is banned, based on:

  • Sales agent problems in other industries
  • My recent experience with telemarketers selling online courses
  • The difficulty involved in monitoring the conduct of a large number of agents and enforcing current obligations on colleges.

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Has the Government put Rick Otton’s book in all the libraries?

Rick Otton and his students go to great lengths to show how “rent to buy” strategies are accepted – even supported – by Government, the Courts and the banks.

Most of these claims are probably inconsequential in their own right, but it appears that they aim to build up a picture of strategies that are ‘mainstream’ and safe.  The risk is that some people confidently put these strategies into action, and find out too late that some aspects of the practices have not been fully tested in the Courts and are open to challenge.

book in libraries

Here is just another example where Otton claims in 2013 that the Government put his book “How to Buy a House for $1″  in all libraries, and says “they appreciate progress”.   Replies to his post on Facebook include “Awesome”, “fantastic Rick, great success”, and “outstanding”.

Admittedly, the Trove service is created and maintained by the National Library (an Australian Government institution), but that is where Government involvement ends.

According to the Trove website it “provides access to more than 380 million resources” with a link to Australia including books, newspapers, journals and websites.

I probably don’t need to go any further to suggest that it would be physically impossible for Government to make a value judgement on each of the 380 million resources on Trove, which as well as Otton’s book include books supporting Scientology, Creationism, and 9/11 conspiracy theories!

Otton is correct however, in noting that his book is available to borrow from some public libraries.

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So what does a ‘peak body’ do anyway?

Last year the Federal Government cut funding to some peak bodies, including bodies representing disability and housing services. It may initially appear sensible to make funding cuts to ‘peak bodies’ that don’t usually provide direct services to clients – but these bodies indirectly help disadvantaged people in ways that individual services can’t.
I’d like to share as an example, the work of one peak body I am familiar with – Financial Counselling Australia (FCA).  To date FCA receives funding from Government to employ just over 2 FTE positions; however its funding position beyond June 2015 is unclear. Continue reading

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Publicity Monster finally pays up

See previous post for background.

In June 2014, the Victorian Tribunal (VCAT) waived any obligation for my friend L’s business to pay $3,030 to Publicity Monster (PMAU) and ordered PMAU to refund to L the $1,317.80 he had paid them.  Publicity Monster is part of the Search Results Group and a business name of PMAU Pty Ltd. Continue reading

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