Education Planning with Matthew Riddington, Partner

Education Planning with Matthew Riddington, Partner

Education Planning with Matthew Riddington, Partner 500 366 AMA Team

When I first held my new baby daughter in my arms, I must admit that the cost of schooling and college education was the last thing on my mind! Now, two decades later with three beautiful daughters, one in an International School and two at University, undertaking Bachelor’s and Master’s Degrees, I know how the reality of those costs can truly hit home unless you plan well ahead.
The need to start planning for your children’s education can never come too soon. The preparation and prioritizing for your spending should start early. In my experience parents should seek to start saving from the day their child is born: or sooner!
Today the costs of education, including tuition, accommodation and living costs, in a top 50 College or University is around USD 200,000 per child. In my opinion, it is necessary to take a pragmatic and structured approach to the financing of these essential and unavoidable costs. The reality is that it is possible to build the capital required during a lifetime, from birth to late teens, using a relatively focused savings strategy. The key to being prepared is having the ability to self-fund.
Tax efficient Education plans and low interest loans are widely available globally and can be a great funding medium for bridging the Education shortfall. Some examples include US 529 plan and Australian HECS. It is certainly worth looking at these, but full reliance on loans and deferred payments should not be considered the only option.
In the USA, 529 plans are not subject to federal tax and generally not subject to state tax if used for the qualified education expenses of the designated beneficiary. Launched in the mid 1990’s these plans will likely remain the standard for years to come. Be sure to compare the various features of different plans and their eligibility. Contributions are limited and cannot exceed the amount required to pay for a higher education degree and the expenses associated with it. If they do you may be subject to tax on those contributions. It is also important to note that any contributions or gifts to an individual on which you do not pay tax, cannot exceed $14,000 in one year.
The Australian Higher Education Loan Program or HELP, provides eligible students with student loans and discounted education fees. You should be aware that, in reality a potential student debt of $120,000+ and interest at 4% p.a. could leave a student in post education trauma with crippling debt.
In the UK, the UK Children’s Trust Funds has been discontinued, further showing a lack of support and commitment to private education by government and the need for personal funding.
Many parents look for low cost or free education throughout Europe and Canada, for example, which have some outstanding Colleges and Universities. However, it can be very difficult to gain access to these due to the high demand. The days of easily available, good, free education are getting further and further away and, in addition, the specialist nature of the International kid’s mind-set, concludes that to achieve their full potential, only the top schools are good enough. These establishments can also have the biggest price tags!
Whilst Scholarships are widely available globally, providing reduced or free funding for an exceptional student, it is clear that even with top grades the lure of a Scholarship can disappear very quickly once the interest in a school has been solidified, leaving zero benefit and an unexpected balance to be paid. My advice is to be assertive, push for discounts and seek clarification of the process for scholarship acceptance at an early stage to avoid disappointment.
The use of property purchases to bridge Education funding is a widely used investment strategy. The growth in property values over the medium to longer term can produce great and sometimes exceptional returns and long-term capital to fund education. As a cautionary consideration, the desperate plight of millions of US and Europeans caught in the property crash of 2008 is a message that such an illiquid asset, which in principle seems to be low risk and high gain, can leave a sour taste. With the Asian property markets unsure of the direction they are going, caution should be sought if you decide this is your preferred savings strategy.
In both the Domestic and International market many plans exist to mitigate any Education shortfall, from guaranteed capital security to more aggressive savings products. The amount of shortfall and levels of savings required to mitigate this can be accurately calculated by your Financial Consultant as part of your on-going financial review process. As with all financial products, ensure you are comfortable with the product features including investment risk and charging structures.
I believe one thing is very clear – those who have the financial capability will have the choice of the best education for their children but only if they take full advantage of the opportunity to plan.
 
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Matthew Riddington 

Specializes in working with professionals, many of whom are entrepreneurs and senior executives of some of the world’s largest companies. Matthew believes that through the exceptional tools available within the international market place he can deliver results, whilst never losing sight of the fact that every individual offers their own unique and specific circumstances. Matthew holds the appropriate regulatory qualifications for financial planning and has Advanced Licensing in many areas of expertise attained during his more than 20 year career. Learn more about Matthew here.

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