When building financial plans for families, we tend to find that educating children ranks highly on the list of priorities. The costs associated with primary and secondary school education will usually be funded from regular monthly household income. While there is a general awareness that third level education is different, often we find that families have not spent time to properly understand the costs. Some planning is usually required to help maintain a healthy family financial position.
The costs going to college in Ireland are high and rising. Accommodation and other costs have increased much faster than overall inflation, and faster than income growth.
What does it cost?
The DIT Cost of Living Guide estimated the annual cost of University education in Ireland for 2018/9 at €11,829 for those living away from home. For those living at home the estimated annual cost is €6,780 (Source: DIT Campus Life).
These costs have been rising rapidly in recent years. It should be noted that student accommodation is not covered by the 4% rent cap applying in rent pressure zones.
Let’s consider a simple example of a family with two children planning to attend university for four years and live at home. The total cost based on estimates above would be approximately €54,000. If living away from home the total cost would jump to almost €95,000
How to fund it?
Similar to funding other financial goals, the earlier families start to plan for future education costs the better. Saving monthly into a deposit account is one approach, but with drawbacks including very low interest rates, failing to match inflation, the temptation of accessing funds for non-college expenses.
An alternative approach might include contributing monthly to an appropriate investment fund, aiming to deliver some growth in value to help offset rising costs. Keeping it simple for the moment*, let’s consider the monthly investment need to reach funding goals for the sample family above – i.e. two children going to college at age 19.
The illustration below shows the estimated monthly investment requirement based on different starting ages, and funding goals for (a) living at home and (b) living away from home.
*ignoring investment returns, fees and taxes
The Financial Plan
Every financial plan we build for families is different, but one common theme is usually education planning. The route to their college funding goal sometimes starts with a lump sum investment followed by monthly additions, but there are many options available.
The key message to takeaway is that this can be a substantial future cost that impacts heavily on household cashflow. But with some planning a professional financial adviser can help put in place a strategy to prepare for this important financial goal.
Author: John McWey, Managing Director, Ardbrack Financial Ltd. www.ardbrack.com
The content of this article is for general information purposes only. It does not constitute tax or investment advice as it does not take into account the investment objectives, knowledge and experience or financial situation of any particular person or persons. You are advised to obtain professional tax and investment advice suitable to your own individual circumstances. Ardbrack Financial Limited makes no representations as to the accuracy; validity or completeness of the information contained herein and will not be held liable for any errors or omissions.
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