Schooling your child: The facts about planning for your child’s education

How to do child education planning, schemes, investment plans and calculator.


How to do child education planning

During the first years of his life, you’ve watched your child grow, take his first steps, say his first words and heard him laugh at all of his daddy’s jokes. You spent countless hours playing with him and teaching him things that are going to help him develop throughout his childhood. And now the time has come to send him off to school.

But this decision is not as easy as it sounds. There is pressure from your friends and family to send him to the expensive private school almost 35 minutes away. There he’ll stay until high school, where he will be groomed in every subject and primed for college.

Just a few minutes down the road, however, is an equally good public elementary school that you’ve watched the neighbour’s children walk to each morning. The facilities appear to be just as nice, and it would save your family thousands, maybe tens of thousands, in private school tuition. So, what should you do?

You can’t base your decision solely on convenience, but at the same time your family budget might not bear the added cost of a private education, especially if you have other children. And then it becomes a question of what’s more important, your children’s education or an annual family vacation? The answer is simple: both. There’s no need to choose one over the other.

Get over the myth:

“Some public schools are better than some private schools, and some private schools are better than some public schools,” says Eric Sands, a financial professional in Fort Lauderdale, Fla. “All that truly matters is if the child is learning in a friendly and fun environment that makes the child feel safe and secure for the full effect of learning to take place.”

Having said that, before you send your kids off to any school, it’s important to do your research. Make an appointment to meet the principal, talk with some teachers and check out the facility. Then try to speak with some parents about their children’s experiences. If you are not fully comfortable with the institution, keep looking.

“I really think the school should match what you want for your child,” says Ann Pollina, the head of Westover School, an all-girls college preparatory school for grades nine through 12 in Middlebury, Conn. Public schools are there to educate everyone, and they cannot cater to everyone’s needs, she says. “This, however, is what private schools do,” says Pollina. “Private schools are established around a mission, and you get to choose the education for your child.”

There is also the benefit of smaller student-teacher ratios and smaller classes. “It’s really a disservice to put public schools and private schools against each other,” she says. “They are not enemies.”

kids schooling plan

Tighten your budget:

If you think a private school is a possibility in your child’s future, it’s best to start early, says Deborah Waites, a financial professional from the US working in the UK. “Take a close look at your spending – both the little bits every day and the major expenses, because there are so many ways families spend money, like cable television and toys, and that adds up substantially,” she says. “So, if you can manage that before your kids go to school, it’ll make it easier for tuition on an ongoing basis.”

“Avoiding high priced credit is something I warn everyone against. Payday loans, cash advances or door-stop loans all prey on people paying higher than normal interest on small amounts.”

Waites says that although she has previously used credit cards, she is too scared of not repaying after working for a major lender in the UK. One such lender, SimplePayday, offer loans online at over 2000% per cent interest to be repaid within 30-days. “Even though the interest rates look high it’s not as bad as you think, unless you fail to repay.” Ms Waites says. “I repaid as agreed and it ended up being a 25% charge on my money. So, for every £100 I borrowed I repaid £125.”

Although useful in a minority of cases, credit cards and all instant-type loans will be costing you money to be using your own cash! This also applies to higher purchase or luxury items.

Think of it in these terms: If you spend £200 a month every month over your life on a new car or loan repayment, that could be a tuition payment, says Waites. “So, there’s no sense getting rid of a perfectly good older car,” she says. Also, if you live near a neighbourhood with good public schools, it may be more cost effective to move than to pay for tuition at a private school for a few years, she adds.

Tuition planning:

In the US should you choose in favour of the private institution, know that there are loans, scholarships and tuition payment plans for private schools along with the 529 savings plan, says Sands.

“There is a great new way to save for the pre-high school education needs of your children and grandchildren: the Coverdell Education Savings Account,” says Debbie Webb, an accountant in personal and business taxation in College Station/Bryan, Texas. “This savings plan has been around for a few years under the name of ‘Education IRA,’ but only recently have tax law changes made it a smart thing to invest in.”

This is how a Coverdell ESA works, according to Webb. “An account is set up at a financial institution with a single child as the beneficiary,” she says. “(This is an easy process.) Each year, up to $2,000 can be contributed into the account. There is no tax deduction for the contribution, but the income from the account is tax-free, so there is a nice tax savings as the money grows and income is reinvested. In addition, there is no tax due when it is withdrawn and used for education.” So you won’t have to worry about what these accounts might do to your income tax bill.

The best part of the plan, she says, is that you can use the withdrawals for kindergarten and elementary school expenses such as tuition, fees, tutoring, books, supplies and uniforms. “You can also use the funds for computers, software (for education only) and Internet access,” says Webb. “This account applies to religious and other private schools, but you can also use the funds if the child is in public school.”

And if the money in the account is not used before the child finishes elementary school, Webb says it can be used for secondary and college expenses as well. “But be sure to buy the computer and software while the child is still in secondary school,” she says. “Once college starts, computers, software and Internet expenses don’t qualify.” If your child has special needs, there are some extra tax breaks you can also apply, she says. “So it’s best to see your tax adviser,” she advises.

What is the downside of a Coverdell ESA? The amount you can contribute is phased out between income levels of $190,000 and $220,000 for married taxpayers and at lower levels for singles, according to Webb. So if you make more than $220,000 per year, you cannot contribute. Also, the money must be used before the child is age 30. If not, the earnings portion in the account will be subject to income tax and a 10 percent penalty. If the money is not used for qualified education expenses (say you withdraw it to go on a vacation), the earnings portion will be subject to income tax and a 10 percent penalty, as above.

Each contributor to an account is limited to a total contribution annually of $2,000. So if grandparents have two grandchildren, they can only put $1,000 in each account each year. The other grandparents or the parents could then contribute $1,000 to each of the children to max out the $2,000 contribution per account.

“These accounts are just what the doctor ordered for many people,” says Webb.

financial planning for college

Child education planning:

Tuition, textbooks and computers, oh my! It’s hard to think of saving for college when little ones are small. But soon enough your teen will be researching colleges. To lessen future financial stress, start investing in a good college savings plan now. The sooner you save the faster compound interest will grow.

Estimate the cost:

The first step for smart savings is finding out how much college will cost in order to determine necessary savings. T. Rowe Price’s free Internet College Investment Calculator estimates college expenses and determines the monthly contribution needed to meet your goal. Simply enter the year a child will begin college and a specific school, and the calculator will estimate the funds needed. Further, you can choose to see how potential 529 savings will grow over the years.

Trusty trusts:

Grandparents have used trusts for years to transfer assets to grandchildren (up to $10,000 a year without gift tax) while maintaining the ability to control the funds after the child reaches the age of majority. A trustee distributes the funds according to the trust’s goals.

But trusts are expensive to set up and maintain well. They are also taxed highly and don’t benefit from the tax advantages of other college savings plans.

Start early!:

Saving money for college is never an easy task, but if you start early you’ll greatly lessen the load when college time rolls around. Since the birth of her daughters,

Lauren Elliott of Kentish Town, London, has saved a little money each week, even though it’s difficult. She plans to buy cars that will mature when her girls turn 18. “I feel it’s important for my children to go to college without feeling as though there’s not enough money to do it. If I save now, the money will be there and my daughters can follow their dreams,” she says.


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