By far the biggest expense in raising children is third level education. Recent research estimates that it costs about €42,000 to put a young person through college over four years, a figure that will rise significantly if plans to reintroduce full college fees proceed. John Lowe of MoneyDoctors.ie investigates.
So how do cash strapped Irish parents provide for this necessary expense if we wish to see our children given the same opportunities parents themselves may have received?
For some families, there may be little left in the kitty to provide for their children’s education. Even if they could put away the monthly Child Benefit – €140 – from the time the child is born until their 18th birthday, when it stops, and if that accrued sum of money had a net return of 3% per annum, the total amassed would be just short of €42,000 – the precise amount required for a child’s 3rd level education without fees.
The vast majority of parents use the Child Benefit from day one for the purpose it is there – to help financially support the family through the years. If you just saved it and received no interest you would have accumulated only €28,560.
The important word when it comes to saving for your children’s future third level financial requirements is START. So here are tjhree ways to kickstart that third level plan:
1. Regular saving account – Most of the deposit takers offer these type of saving accounts. You are not allowed to lodge lump sums into them, just a regular monthly lodgement between €100 and €1,000 per month for up to 12 months. You may withdraw at any time without penalty.
Best provider currently is AIB Bank at a jaw-dropping 2% per annum (and that’s before DIRT tax deduction). If you leave the fund there the interest rate drops to 0.1. Bank of Ireland offer 1.5% per annum but allow €2,500 per month to be invested for that year, a total of €30,000 then it drops down to 1%.
2. GoldSaver account - Gold Saver is a regular savings account, but instead of saving in euro, pounds or dollars the account facilitates saving in the form of real gold – bullion. With GoldSaver, account holders can buy gold online on a monthly basis with a minimum monthly purchase from as little as €100, paid conveniently by direct debit.
Account holders can also make additional lump sum deposits at any time. Considering the delicate state of the global economy, gold, the barometer of volatility, could prove to be a real winner in 18 years’ time when your child goes to college.
3. Stock market regular saver – there is no better asset class when it comes to top returns over any 10 year period (1991 to 2020 – the annual average growth was 10.72%). As Warren Buffett once famously said the stock market is a mechanism for transferring wealth from the impatient to the patient.
One such way to enter the stock market is though managed funds. One insurance company – Zurich – offer a regular monthly saving plan with their five Prisma funds, ranging from #2, cautious – government bonds and cash funds – to #6, high risk – emerging markets, technology and energy stocks and BRIC countries, where you determine the percentage to invest in each fund.
You can swap these funds at any time from risk to cautious and vice versa. The real benefit is the fact the minimum monthly investment in their investment called LifeSave Special Savings Plus is only €100 – the maximum if you can afford it is €2,500 per month.
Zurich insurance are one of the best capitalised companies and have an excellent performance record coupled with minimal costs. Irish Life, best credit rated (AA) and biggest insurance company in Ireland offer Multi Asset Portfolio managed funds (MAPS) with its unique comfort feature Dynamic Shares to Cash – automatic switching from aggressive funds to cautious/passive funds triggered by global economic events – minimum, though, is €250 per month.
You can email me jlowe@moneydoctors.ie for details of any of these three saving ideas. Happy saving!
For more information click on John Lowe's profile above or on his website.
The views expressed here are those of the author and do not represent or reflect the views of RTÉ.
