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With rising educational costs, more and more grandparents are helping out with school fees. However, with longer life expectancy, it certainly pays to make calculated decisions before digging into your retirement savings.
The cost of education in Australia is a concern for many families. For example, the cost of sending a child born in 2018 through the private schooling system ends up close to half a million from prep through to Year 12.
A recent survey by Edstart shows that only half of the families with children in private schools can afford the fees from their income.
QSuper’s chief of member experience Jason Murray says, with the cost of education rising by 44 per cent in the six years leading up to 2016 based on Australian Bureau of Statistics data, it is hardly surprising that more grandparents are now helping out with school fees as parents feel the pinch.
"We found with members between the ages of 25 to 34 that 37% found that the cost of children’s education was of extreme concern and that rose as you got older, so the next age group between 35 and 44, that was 44%. So, clearly, there is stress there. There is a challenge there so putting that into perspective the pressure on young families is very high, and that is likely to drive people like grandparents etcetera to try and help."
BT Financial Group’s head of financial literacy and advocacy Bryan Ashenden says, baby boomers are increasingly choosing to pay for school fees instead of leaving money behind for their grandchildren for more control over what the money will be used for.
“If you were to leave it behind as part of a will or as part of an estate, there is always the risk that it can be challenged and so the money could end up number one - going to somebody else that you didn’t want the money to go to or it could be used for a completely different purpose and there are also some potential tax considerations coming through. So, maybe not as much money will be left behind as what you originally thought would be the case.”
Ashenden says whether grandparents decide to pay through their savings, a bond or superannuation, the main question is how much you want to contribute towards the education cost of your grandkids.
One thing to bear in mind is the gifting rule set out by the government.
“If you’re in receipt of, for example, the age pension from the government, there are gifting rules that come into play. Now, it doesn’t mean that you can’t give them that money but what it does mean is that if you exceed the limits, which is generally it’s $10,000 per year or it’s $30,000 within a five year period. If you give more than that money away, then that excessive amount, whilst you don’t have it, it’s still deemed to be an asset of yours and it’s an asset of yours for a five year period and what that means is Centrelink will take it into consideration in working out what the level of age pension is that you can get.”
A recent survey by industry super fund REST finds that close to a third of Australian retirees plan to use their superannuation towards their grandchildren’s school fees.
Jason Murray advises that grandparents need to remember that superannuation is, after all, intended for your wellbeing in retirement.
“There is tax implications there you know there are certain products like investment bonds or insurance bonds which have different tax structures and they have implications and they need to be considered. So, considering how the education can be funded long-term, recognising that there is going to be other implications on including potentially your health and being able to make sure that you’re not going to make a commitment that you can’t endure for the long-term, and if you are looking at putting money into investment bonds or other structures who has control of that over that duration?”
Melbourne-based social worker Anu Krishnan says not everyone can afford to pay towards the private school fee of their grandchildren.
But this doesn’t stop grandparents from paving a bright future for their grandkids as some find other ways to lend a helping hand within their means.
“I think there is a perception of exclusivity in private schools within migrant communities and they want their children to make good long-term connections to build their networks, which the perception is that happens through private schools, which is why a lot of them end up either sending their children to a lot of tuition and coaching classes so the children will crack the private school exams for scholarship and do it and one of the parents actually told me that the grandparents paid for the children’s coaching to get a scholarship onto private school because that was more affordable than paying for 5 years of private school fees.”
With one in five people aged over 65 born in a non-English speaking country, many have their finances managed by their grown-up children in Australia.
Those living in multigenerational households may end up being encouraged to pay for their grandchildren’s school fees at the expense of their own financial freedom.
Krishnan advises that older people should try to make sense of their finances to avoid losing control of their retirement savings.
“And before they know it, if they’ve got two or three grandkids, it adds up to quite a bit and then they’re pretty much subsidising all of that because in their mind, the children have to look after them and then if I’m paying for something, then I’m doing it because it’s my duty, because it’s something that I want to do even if they are putting themselves at a financial hardship or at a financially-negative position leaving themselves vulnerable to being taken advantage of.”
With financial abuse being one of the most common forms of elder abuse in Australia, Krishnan’s own experience of working with Melbourne’s Indian community highlights that older people may experience it without even realising that it is occurring.
She recommends speaking with your local community legal centre for sound financial advice as well as having an open conversation with your children before making any long-term commitments.
“So they need to start having some of those conversations with their children and not be shy of or be afraid of asking those questions of their children, like, okay, you want me to pay $1000 every month but what is that for and how long do I have to pay that for and understand that if it’s $1000 that’s coming out of their savings every month, then in four years’ time, it’s close $50,000 or $60,000 that’s going to be gone so they need to understand the implications of some of that and make decision from a completely informed perspective.”
Whatever you decide to do, Bryan Ashenden suggests weighing up the expectations of other family members before drawing out your savings to pay towards one grandchild’s school fees.
“Whilst helping out is a really noble thing that you might want to do just be aware that as the grandparents are you setting yourself up that there is going to be a greater expectation that you’re going to be doing it for more people than you think you were going to do it for?”