dp money: Count the cost of education; Private education is expensive. So how can you ensure you get your financial sums right when it comes to your child's schooling? Jane Hall did some research.
A S CHILDREN knuckle down to the new academic year, many parents are likely to be counting the cost.
They are the mums and dads who have chosen to take the private rather than state education route for their offspring.
For many parents, the cost of private education is likely to bring them out in a cold sweat. How can they afford it?
A private education may still be a widely held aspiration, but the average annual cost of sending one child to an independent day school is now nearly pounds 8,000 - an even larger slice of a family's outgoings than mortgage repayments.
If you want your child to go to one of Britain's top independent schools, don't expect any change from pounds 20,000 a year.
According to figures from the Independent Schools Information Service (ISIS), it can cost up to pounds 52,500 to send a child to day school from the ages of 13 to 18. If you opt for boarding school, the cost can be up to pounds 75,000 - the price of a house in many parts of the country.
With the average gross annual salary for the North last year standing at around pounds 20,000 (pounds 26,925 in London), few parents can afford to pay school fees from income alone.
Independent school fees are rising by about seven per cent a year. There has even been speculation that by 2020, some independent schools, such as Eton, will be charging pounds 60,000 a year.
Yet against this background more children than ever are being educated in the independent sector.
While most will attend the much cheaper day schools, the cost of even these is a substantial burden for typical families with two or more children.
The vast majority, however, will have no investments or financial planning to fall back on, and will have to meet the full costs from their income, by borrowing or relying on generous grandparents.
But with careful financial planning, it is possible to cushion the cost of giving your child an independent education.
The best way to cope with such substantial bills is to begin planning early. Don Hutton, regional director for ISIS North says: ``Providing the finance for private education is often a daunting task. The best advice is to always start early and make plans to finance your child's education at an early stage.''
Early means from birth. Couples should be looking at starting an investment strategy as soon as they have children as the earlier money can be locked into a savings or investment scheme the bigger the returns will be. If fees are needed in more than five years' time, you should have time to maximise your returns by investing in the Stock Market. The Stock Market may not seem a safe haven at the moment as it continues on its roller coaster ride, but all such investments should be viewed in the long term.
For safety's sake, you need to spread your cash over a range of funds, possibly including a tracker.
Edinburgh Fund Managers InvestIT for Children (OK) allows you to save from as little as pounds 20 a month in a range of trusts. It offers two ways to save - The Designated Account and The Trust Account.
The first should be used if you need access to the proceeds of the investment before the child reaches 18, making it suitable for people who want to save for school fees or extracurricular activities like music lessons or sports coaching.
Lesley Drummond, marketing manager at Edinburgh Fund Managers, says: ``Saving a small amount each month over a period of time - say pounds 20 - could help towards funding your child's secondary education, so it is well worth the little effort.
``Investors could look to invest in the stock market through collective investment vehicles such as investment trusts for potentially higher growth prospects over the longer term.''
CGNU. Zero dividend preference shares of investment trusts are another option. You earn no income but are paid a predetermined amount on certain dates. Again it is possible to invest in zeros through a collective fund.
Don't forget to exploit your tax-free Isa entitlement. A maxi-Isa allows you to invest up to pounds 7,000 each tax year with a mixture of equity, cash and insurance. You can invest all of this money in equities, or you can choose a combination investing a maximum of pounds 3,000 in cash and pounds 1000 in insurance.
If funds are needed sooner than five years, you may consider the time frame too short to gamble on the stockmarket and may prefer to stick to deposit-based savings accounts.
A LTERNATIVELY, some financial advisers still recommend a series of endowment savings plans maturing at successive dates for school fees purposes. However, these can be inflexible, incurring big penalties if you need to cash them in early.
It is sometimes possible to buy policies cheaply on the second-hand market which can give an even better return, provided you only buy contracts from companies with good performance records, such as Standard Life, Legal & General andWITH interest rates currently at an all time low, don't expect to make huge sums on your cash. The best no notice accounts are currently offering between 3.75pc and 4.80pc, and some of those are only for a limited introductory period.
Make sure you invest in a tax-efficient mini-cash Isa. Although rates are coming down, you can still earn 4.65pc in a minicash Isa with Northern Rock, although again this is an introductory variable rate for a limited period. Cheltenham & Gloucester is paying 4.50pc.
Many schools now run their own payment schemes. Parents are asked to either pay a lump sum in advance which entitles them to a discount on fees, or to make regular savings. This money is then invested in a high-interest account to produce a guaranteed return by the time their child is eligible to start school.
And parents shouldn't think paying into one of these schemes guarantees a place at the school. A child may still have to pass the relevant entrance exams.
These schemes can also be inflexible, providing a poor surrender value if the child is educated at another fee paying school, wins a scholarship or goes to a state school.
But what do you do if you need to fund school fees now? There are only two sensible options - either cash in other investments or borrow to meet the bills.
When it comes to borrowing, there are no magic school-fees deals. As with any loan the secret is to keep the cost down.
One way could be to re-mortgage. With house prices at an all time high and interest rates at a 38-year low, freeing equity tied-up in bricks and mortar is a cheap way to borrow.
A flexible mortgage allows you to draw down cash and repay it according to your circumstances. But remember, you could place your home at risk.
VITAL SPELL: More children than ever are being educated in the independent sector - but most will enjoy less excitement than Harry Potter, the renowned pupil of Hogwarts School of Wizardry
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|Publication:||Daily Post (Liverpool, England)|
|Date:||Sep 16, 2002|
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