Ask Paul: How do I invest for my children's education?
Haydn wants to invest $20,000 for his kids' education. From ETFs to offset accounts, what actually delivers the best long-term outcome?
Reader question
Hi Paul,
What is the best option to invest for our children's education?
In the past my folks had a specific education saving or investment set up for me and my brother.
This does not appear to be an option with the major providers that I can find.
So far we have looked at ETFs, bonds set up in each child's name so we can claim the tax benefits, and simply setting up an offset account on our mortgage, which saves us in interest but doesn't have a growth option like investing.
Are there better managed options we can investigate?
We are looking to start with $20,000, $10,000 per child, plus monthly contributions.
We are not anticipating redrawing for a minimum of five years when the eldest starts high school.
PS. Our financial adviser was not much help for this one.
Paul's response
Hmm, I'm not impressed with your adviser, Haydn.
Investing for children may not make an adviser much in the way of fees, but it is a wonderful conversation.
We're talking about setting children up with money for the future but, more importantly, starting a conversation about saving, investing, compound interest and overall financial literacy.
That is one of the best skills we can give kids and grandkids.
This is a personal view, but with our kids and now grandkids, we prefer to invest as trustees for them using low-cost ETFs.
Another option my wife and I like is listed funds, such as Future Generation Global or Future Generation Australia.
What I like about these two funds is that the board and managers work on a pro bono basis, and 1% pa of net assets is donated to youth mental health.
Maybe this is an opportunity to teach your kids about something that is a responsibility of those of us who have done okay with money, to help others.
Our government cannot do everything.
A final idea, and one where I am totally biased, is Fundlater, a product offered by InvestSMART. My bias is that I chair the company and own shares in it.
But I think it is a great idea.
We've done this for our four little granddaughters.
You invest $4000 into Fundlater, we chose the ethical option, and InvestSMART adds $6000. This is paid back in $300 monthly amounts over 20 months. There is no interest, but there is a monthly account fee.
Once the app showing the four accounts is up, and while the little ones are too young to be involved, I do enjoy showing our adult kids how the grandkids' money is doing.
Extra money can be added at any time, such as birthdays, or you can add another $4,000 and off you go again. Clever idea, I wish I had thought of it.
Sure, bonds are also a simple option.
The real point here is no matter which way you go, you are doing something, and this is the real issue.
My parents did this for me and my sister and the money helped hugely with starting my business when I was in my late 20s.
It was also a topic of conversation over the dinner table a few times a year and developed my interest in money, which became my career.
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