Key Post What is the best way to save for children's education?


If it was watertight, yes it would
 
RedOnion said:
Overpayments sit as a credit on the account, reducing the interest accruing balance, but don't change your maturity date / repayments. When you need money for something else, you can stop paying the mortgage, and the 'credit' starts getting used up.
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This is the point I was trying to make about not make investment decisions today based on something in 18 years time.

It is just plain wrong to borrow money today at 3% to put it on deposit at 0%.
It is just plain wrong to borrow money today at 3% to invest in shares in the hope that one will get a return after tax and expenses in excess of 3%,

The world will be a different place in 18 years. If Gordon is a ptsb customer when his kids are going to school, he will be able to take a long mortgage break to pay for their education. But most people who have a mortgage today will not have that same mortgage in 18 years.

They may have switched lender.
They may have moved home.
They may have stayed in their home but paid off their mortgage in full.

For you to be right Gordon, you have to make a huge number of assumptions to hold over the next 18 years and everyone of those assumptions would have to be correct.

1) The returns on your mixed cash and equity fund after inflation will have to well exceed the mortgage rate to compensate for the risk involved
2) Your children will want to go to college
3) You would not be able to afford college fees in 18 years times from your income combined with savings from the previous 5 years - don't forget that your mortgage repayments will be a lot lower.
4) You will not have received any inheritances or other windfalls
5) You will not have moved home or switched mortgage in the next 18 years
6) In 18 years, Irish banks will not lend to people at the mortgage rate to pay for their education
7) You will not be able to borrow elsewhere at a reasonable rate to pay for their education.

If all of these things happen, and they all have to happen for you to be right, you can come back in 18 years and tell us "I told you so".

But even then you would be wrong. Because while all these events might have happened for you, for most other people making the decision today, one or other of the 7 events will not have happened, which would mean that they would have been better off paying down their mortgage today.

Brendan
 
Hi Brendan,

We will have to agree to disagree. I believe that the right approach for such “landmark expenditure” is to provide for it explicitly and set it aside.

Gordon
 
A point many neglect is that (on average) your wage income peaks between 45 and 50 over your lifetime.

This is at or just before when most people face peak education expenses.
 
Hi Coyote
What is the significance of that? Is it that the person is most likely to be able to pay for third level expenses out of their higher income?

Brendan
 
Is that PTSB mortgage product still available? Their rates are shocking, no? Are there limits in terms of what you can pay off?
 
Brendan Burgess said:
Hi Coyote
What is the significance of that? Is it that the person is most likely to be able to pay for third level expenses out of their higher income?
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Yes! It's personal and depends on your career track.

But the majority of people earn materially more at 50 than 30.
 
Gordon Gekko said:
Is that PTSB mortgage product still available?
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Yes, it's part of their standard product. However, I've seen small print on one of their marketing brochures, as below.
I'm not going to go reading a mortgage contract now to see what you're actually signing up to, but it might not be watertight from looking at this:

"
G: Termination
permanent tsb reserves the right to terminate
the exercise of any Flexible Repayment Option at
any time, with or without notice, for any reason
which permanent tsb, in its absolute discretion,
thinks fit subject to applicable law. In the event
of the termination of the exercise of the Flexible
Repayment Options permanent tsb will require
payment of the full monthly repayment which
would otherwise be payable but for the exercise of
any Flexible Repayment Option and the monthly
repayment will be recalculated to reflect the
rate of interest, the balance outstanding at the
time of termination of the exercise of the flexible
repayment option and the remaining term of the
loan."
 
Having read three pages of deliberation, personally I will prefer a monthly saving in Investment funds for children (age 10 and 5) for two reasons-
1. Annual small gift tax exemption seems a lucrative incentive
2. Flexibility of assessing these funds at 18 while overpaid mortgage will be already spent

Considering I pay higher tax on this €6000 contribution, how much tax will I save and how does exemption work? Also please suggest your favorite funds. Came across Zurich child saving plus plan and I am sure there are more options.
 
There’s no income tax relief on the Small Gift Exemption.

It just enables €3,000 to be given to someone every year free of Capital Acquisitions Tax and without impacting on their tax-free threshold.
 
Gordon Gekko said:
There’s no income tax relief on the Small Gift Exemption.

It just enables €3,000 to be given to someone every year free of Capital Acquisitions Tax and without impacting on their tax-free threshold.
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How is exit tax treated? For example, €1000 in accumulating ETF over eight years will attract 41% tax on disposal. If I invest it in child saving plus account in Zurich and assign policy to a child who is 10 years. That fund will grow around 4-5% (7-8% minus cost) but it's not mine after child turns 18 years so I am not liable for 41%. Is that right?
 
Having an 8 year old and a six year old myself, I have skin in this game too. However on talking to a financial advisor recently as I was contemplating a redundancy, she advised me not to worry so much about college fees, like Brendan, too many variables between now and then.
She also said that creche fees were as much if not more and we found the money for that, without planning for 18 years in advance.

Looking back, I think we've spent the bones of €80,000 on childcare. That would go along way to paying off a chunk of the mortgage or as a nice investment fund, but we found it out of day to day expenses so I'm less concerned about college when the time comes.
Having said that, we had two adults working full time with comfortable salaries. (I've recently cut back my hours to part time now)
 
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