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Written by Matt Kirk Published: May 6 2020 Investments
Many people want to help family members pay for children’s education and grandparents and godparents are increasingly being tapped to help with school fees.
The rise in private school fees is outstripping the increase in inflation, the Australian Financial Review found earlier this year, so many families are going to need help.
This is unlikely to end with Year 12, once tertiary courses are chosen and higher education fees are charged.
Some of us have spare cash we can set aside and allow to compound over time in readiness for expensive teenage years, and there are options for how this is invested.
As a donor, you can hold the money yourself, in which case it’s important that a spouse or partner knows the purpose of the investment so they can ensure it reaches the right person if something happens to you.
If you decide to give the money to the child’s parents, you may want to put some stipulations on how it is invested and be sure they feel comfortable “quarantining” the cash when they might prefer to pay down debt or spend it another way.
Term deposits (TDs) make sense in this scenario for both donor and recipient.
Parents can invest the money in a TD to maintain faith with the donor knowing the funds are not at risk, there are no expensive administration fees and the balance will increase over time.
There can be an awkward moment if the donor asks what you have done with the money, and you can assure them the funds are in a term deposit that you check regularly and reinvest to earn the highest rate available.
The money is invested in accordance with the donor’s intentions and will build up to a nest egg that will really benefit your youngster in a few years time.