16 Aug, 2018

College Funding - A Father's Perspective

With the Leaving Cert results released yesterday, the excitement is building for those who are preparing to head off to college this September. However, for parents across the country, the anxiety still remains as they contemplate the cost for this next step in their child's life. Ifac's Head of Financial Solutions, Martin Glennon, considers this financial milestone.

It’s that time of year again, the Leaving Cert is finished, the results are in, and the excitement builds for their next step towards independence, college. Your budding student “Lauren” is concerned about where she will be staying, who she will know and most importantly, what the social life’s like.

You are left to contemplate the cost. You have thought about it numerous times in the last few years, but not in any great detail. You told yourself, “We still have time to sort something out”. But you never got around to doing something specific. Or, you did put some money aside but highly underestimated the actual financial burden.

You read a newspaper article stating that the annual cost is €11,766 per year for those who need to rent. The article confirms that it is €5,000 per annum less for students who live at home. Worst case is Dublin where the cost to rent is €1,000 per annum higher than the average figure quoted. An average of €12,000 a year, over four years and you are staring at a €50,000 headache.

You question the figures. They can’t be right. You check the details and see that they estimate a monthly cost of €75 for social life and realise that’s definitely wrong, more like €75 per week! You wonder if “Lauren” can go to a college nearby. A potential €5,000 a year saving over four years, that would really help. Maybe her number one choice is a three-year course. That will reduce the bill by 25%. Travel is estimated at €135 per month to which your mind says, “you could get her a bike!”.

Like many families, you will manage by using your monthly salary, any small savings you have and for many, a Credit Union loan. It will be tight, but you’ll cope. You feel better for a split second. But Lauren has a younger brother and sister. They will be looking to follow in their sister’s steps. You calculate they have 3 and 7 years respectively until college. If they do Transition Year, that will give you an extra year. Decision made, they’re doing Transition Year!

You run some figures based on saving €500 per month over 7 years. You calculate that on deposit with an average of 1% growth per annum, you will have a pot valued at €26,090. The same investment with a 5% return, would increase the pot to €30,100.

The extra growth would be handy, but what are the risks involved? And which type of account is right for me? You remember hearing somewhere that for short terms i.e. less than five years, then a deposit account is best e.g. Credit Union account. Anything longer, then a savings plan that invests in growth assets, like shares and property, might be a better option.

“Lauren” announces that she wants to go to a university in the UK and your heart and wallet groan! You think, “Now I really need to speak to a Financial Adviser”.

For help with education savings, contact ifac Financial Solutions.