Saving for third-level fees
It's natural to want to give your children the best possible start in life, but the rising costs of putting your children through primary and secondary school can scupper any good intentions to save for their third-level education.
It costs an average of €105,000 to raise a child from birth to age 21, or just over €11,000 a year, according to a recent study by health insurer Laya.
The cost of childcare and university and third-level college fees are the biggest outlay for parents each year at just over €4,000 each, or 7pc of the average annual household income, while other education-related costs including school books, uniforms and extra-curriculum classes, which amount to just over €1,700 a year, according to the study.
"While those parents who are in the midst of their children's school-going years are well accustomed to this pricey yearly cycle, these figures may by a source of worry for those who have yet to reach that point in their family-cycle," said Kevin Johnston of the Credit Union Development Association.
The majority of parents say they are just about keeping their heads above water, with almost 6 out of 10 (57pc) admitting they are currently not able to put any money aside for savings.
Other surveys from this year and previous years paint similar pictures of parents struggling to make ends meet and beset with worries about how to help fund third-level education, with many sacrificing things like life insurance and pension savings as a result.
If we assume most parents want their child to go to third-level education, how can you put together a plan that allows you to cover essential school costs while putting funds aside for potential college fees?
"Our best advice is to start a savings plan in advance - depending on when you start and how much you can afford," says Mr Johnston. "Even putting aside €5 or €10 a week could make a big difference when the time comes."
All the same, it makes sense to think in terms of both long-term and short-term savings. "Many of the costs involved in raising children are constant such as the need for clothes and food and childcare, whereas others are cyclical - school fees, Christmas presents, birthday presents and more are ad-hoc- medical expenses, school trips and so on.
"While it is impossible to plan for the next 18 years of your child's life, both long-term and short-term budgets should be made to ensure that no matter what the cost, you are always some way covered financially."
Building a rainy-day fund will help parents manage the periods during the year that cause the greatest financial headaches in terms of school costs, says Frank Conway, founder of financial literacy initiative MoneyWhizz.org, and editor of the Irish Financial Review.
"This is only possible if families constantly review how they manage their day-to-day expenses and look to reduce costs," said Mr Conway.
He said using a simple personal income and expenditure sheet as their money management system will create financial visibility. "Constant and discreet costs become 'annualised' which forces families to make ongoing adjustments," he added.
In terms of saving vehicles for third-level fees, you will have more options the earlier you start. If you're reading this and your child is four years away from finishing Leaving Cert, then a regular savings account is probably the only option. But you'll need to shop around for the best rate given the high rate of DIRT on savings.
The best rates currently on offer are from Nationwide UK's Regular Saver at 4pc, (up to €12,000), followed by KBC's Regular Saver at 3pc (up to €12,000), and EBS's Family Savings Account at 2.25pc.
Those who have six years or more on their hands could open an instalment savings account with An Post, which allows you to save for one year and leave the money invested for another five years and earn 1.24pc a year tax-free.
Many parents save their child benefit for third-level cost purposes. An Post's Childcare Plus account is based on the tax-free six-year instalment savings account, but the downside is that you can only lodge your child benefit into it. At €135 a month per child, you can't rely on this account to fund the estimated €40,000 it costs to fully fund your child's third-level education.
Clearly, those who start while their children are still at primary school or even before that, could invest a few hundred a month into funds that spread investment risk across a range of asset classes, including equities, and likely get a far better return than a regular savings account.
Of course, there's nothing wrong with sharing the burden, particularly if there is a shortfall by the time your child is ready to go to college. According to a survey earlier this year by the Irish League of Credit Unions, 8pc of parents said their teenager is already saving to part-fund the cost of going to college.