Our youngest child has just started Primary school. Can you give me some advice on the best education saving plan for our children.
Mr B Collins – Douglas, Cork

I am a big advocate of planning and giving children the best chance in life. As we all know, education is a great investment in your child’s future.

Education is meant to be free but in reality it’s not. Rumours are that our children will have to pay heavily if they want a third level education. This means we, as parents will be fronting the bill!

There is a product in the Irish market that is sold heavily through banks, financial institutions and by financial advisors called “Education Saving Plan”. The purpose of an Education Plan is to save a large amount of money to pay for your child university or college fee, books, accommodation, food and living expenses. In theory education plans sound great but the reality can be very different. As a Financial Planner I am regularly asked to set up these types of policies but I rarely do.

Let me explain why.
Let’s say you have €250 a month spare to invest in an Education Plan. Lucky you!

This €250 is invested each month for the next 15 years. In some cases your money will be taxed as it grows. In most cases you will have a management charge each year. If that not bad enough, finally when you take out your money you will have to pay an exit tax of around 25-30% of the profit. Assuming that it makes a profit! Your money is invested in the stock market and potentially you could get back less than you put in. Shocking, but true!

A strategy I often use with my clients is instead of putting that €250 a month into an Education Plan, I recommend that they start to over-pay their personal loan and then over- pay their mortgage. By channelling your money into getting debt free, in time you will be in a far better financial place to fund your children’s education. If you need a lump sum you have options.

When you have become debt free you can then start a new savings plan, or you can release equity. Alternatively, because you are debt free you can use the freed up income to pay for the fees and expenses associated with third level education.

Now this route isn’t for everyone. If you’re the type that might buy material things instead of over paying your mortgage, then maybe an education policy would be better for you as the discipline will help you build a fund.

If, however, you are sensible with your money – why not target getting debt free as early as you can. Stop giving your hard earned money to the bank on interest charges and get yourself in to a strong financial position earlier in life.

Allan Matthew Cuthbert t/a Financial Wellbeing is regulated by the Central Bank of Ireland to advice on Mortgage,Savings, Life and Pension products