Funding your grandkids’ education

There are few joys in life quite like becoming a grandparent. It’s all the joys of parenthood with none of the nappies. You and your partner now both get to be the ‘fun one’, spoiling your toddler rotten at every opportunity. There was a time when your job was to be the faithful font of knowledge for new parents, the bearer of family tradition and, occasionally, the babysitter (there are few gifts more valuable to a new parent than a sleep-in).

Unfortunately, the times are changing. Grandparents have always been happy to help out financially, wherever possible, but nowadays, they’re being called upon more frequently and for greater support. The rising costs of living, economic uncertainty — even a global pandemic — have thrown challenge after challenge at growing families. While Australia’s retirees have seen their fair share of those challenges too, the one cost that both parents and grandparents will bend over backward to meet is for the next generation’s education.

But how best to do it? What can today’s retirees do to contribute toward one of the greatest investments they’ll ever make in their lives — the grandkids’ education? And how do they keep themselves safe and comfortable while they do it?

And arm and a leg, then the other arm, too

The cost of education is a major source of financial stress for families across Australia. But just how expensive is it? Well, according to the Australian Scholarship Group, yearly primary education fees in 2019 landed anywhere between $3,601 and $12,825, depending on their regional or metropolitan location, and if they’re publicly or privately funded. Secondary school costs fell between $3,987 and $24,105, depending on the same factors.

These figures make affording education a major source of stress for Australia families, right up there with insurance and healthcare. The rise of COVID-19 has shown that the rug can be pulled out from under all of us at a moment’s notice, and helping our children can become more challenging than expected.

More challenging, but not impossible.

Being the bank of (grand) mum and (grand) dad

Retirees have a number of ways to help their children and grandchildren meet today’s financial demands. The first is by reaching into their superannuation. Super contributions didn’t become compulsory till 1992, which means today’s retirees missed out on early-career contributions, and the compounding interest that would’ve come with them. Many of our clients actually find their combined household Super to be sitting in the $200,000-$300,000 range. Education expenses can eat a significant chunk of a fund that’s meant to provide for your own retirement.

Other ways of supporting your kids and grandkids can put you at personal financial risk. Being a guarantor on a mortgage to cover the additional cost of educations constrains your own ability to borrow and puts your property at risk if your child defaults.

You can use your home equity, the savings in your home – what we call your household capital – to help pay educational expenses. Using home equity removes the risks of diminishing your retirement savings or finding yourself in a stressful default situation, because the loan doesn’t have to be repaid until your property is sold.

Our Household Loan can be used as a responsible and sustainable way of passing your wealth onto the next generation. Our first priority is your wellbeing; that means keeping you at home and making sure your long-term retirement needs are covered.

Once we are satisfied your retirement needs are met, we can work with you to access the funding required to help cover the grandkids’ education – without touching any of your retirement savings.

Not only does a Household Loan help keep your retirement savings intact, it comes with a number of guarantees to help you Live Well At Home. You will remain the sole and absolute owner of your home, giving you total control over how you want to live, and any appreciation in your home’s value also goes straight to you. You can’t be forced to leave your home, so you’ll only leave when you choose to. And, no matter what happens, you’ll never end up owing us more than your home is worth.

Becoming the Bank of Mum and Dad doesn’t mean you have to put your retirement at risk.