YOUR MONEY: How best to save for my kids’ education?

Question:

I want to set up an education fund for my kids but I’m not sure if an education policy is the best vehicle. If it is, I would appreciate some recommendations on which one offers the best option. I already have tax-free savings accounts going for them but don’t want that to be used towards education.

— A Fat Wallet Facebook community member

Answer:

First, I agree that using the tax-free account for their education isn’t ideal. The real power of the tax-free accounts is time, and starting when your kids are young gives the accounts many decades to grow and really benefit from the tax-free nature.

As for education policies, they have a bad reputation — but that doesn’t mean they’re all bad. The questions to ask are: how are they invested and what’s the cost structure? Costs need to include everything: adviser (if any), platform and fund fees. Ask for an effective annual cost (EAC) as this will include all the costs.

Alternatively, you could just save directly for your children’s education. Regularly buying simple and diverse exchange traded funds or unit trusts that have low EACs could achieve what a specialised education policy would do, but at a potentially lower cost.

— Simon Brown, Just One Lap

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