From the early bird to last-minute brigade: How to save up enough for college bills
The best way to prepare for – and limit – the cost of college is to start saving for your child's third-level education when they are very young.
SAVE FROM THE DAY YOUR CHILD IS BORN
Saving your child benefit (currently €140 a month for one child) each month from the time your child is born until they're 18 will add up to a lump sum of €40,000 – assuming an average interest rate of 2pc a year is earned on those savings, according to Nick Charalambous, managing director of the financial advisers, Alpha Wealth. Inflation however would reduce that €40,000 to €27,800 in today's money – were inflation to average at 2pc a year, added Charalambous.
Sadly your chances of earning 2pc interest on savings is slim – as savings interest today is typically zero or near-zero. This however may change if inflation picks up.
You may make a better return on life assurance savings than on traditional savings accounts – as long as you choose the right plan and can save for five or more years. However, with life assurance savings, you also have a greater chance of losing some, or all, of your money. So understand and be comfortable with the risk you are taking on with life assurance savings – as well as the charges. “Ensure the fees [on the life assurance savings plan] are not eroding any potential return,” said Charalambous. “It pays to shop around and be forearmed.”
Charalambous recommends Zurich Life's Easy Access Savings Plan for those with five or more years to save for college bills.
LEFT IT TO LAST MINUTE?
For parents who have left it to the last minute to get the money together for college bills, their main options for the coming academic year are to either borrow the money – or to dip into any other savings they may have set aside. Such parents should also make it their priority to start saving for the college years to follow.
Let's say you have a child starting a four-year college course this month and you're facing a bill of €14,500 a year to put them through third-level education. While you have the costs for the first year covered, you have nothing set aside for the subsequent years. This means you have a savings target of €14,500 to hit for each of the following years (that is, the academic years beginning in September 2022, September 2023 and September 2024). So how much would you need to save up to hit each of these three savings targets?
You would need to save €1,208 a month over the next twelve months to have €14,500 saved up in time for the academic year beginning in September 2022, according to Charalambous.
You would need to save €604 a month over the next two years to have €14,500 saved up in time for the academic year beginning in September 2023, according to Charalambous.
To have €14,500 saved up in time for the academic year beginning September 2024, you'd need to save €403 a month over the next three years, according to Charalambous.
Savings are much cheaper than loans when funding college costs.