Cash & Bonds Australian Scholarships Group / Invesment Bonds for kids education

A work colleage of mine recommended Australian Scholarships Group (ASG) to help with the costs of our children's education. My basic understanding is you invest $X amount lump sum/monthly contribution which is then invested and the interest carries tax concessions when used for educational purposes.

I've looked into it and booked in an appointment with them however there are a few blog posts etc. that advise against them due to high fees and questionable T & C's.

Barefoot Investor recommends doing the same thing via Investment Bonds in the childs name (Steer Clear of Australian Scholarships Group (ASG)). At this point I'm more inclined to take the DIY approach as opposed to ASG.

Can anyone shed further light on the subject? Any recommendations for a financial advisor who understands the in's and out's of this investment setup?

 

I had and have ASG and have done since the kids were born. I know they get really bad press and I had looked into bonds etc but for me, ASG is just enforced savings. I pay around $100 a month for my 14 year old, it used to stop at high school but continues now throughout. Every December they send a cheque, around 2K, it pays for her pretty expensive choir fees in a lump sum. It is the only direct debit, apart from the mortgage that I have, I doubt I would be disciplined enough to pay a bond or whatever else is the preferred method. I pay her school fees quarterly so they are not due till March but you can use the payment for whatever you like. Hope that helps.

 

We took this out for our kids (who are now 27 and 22), and we bumped up the younger one's contributions when we were considering private schools, though we went public in the end and very glad we did. We were green as grass about investing at the time, and back then ASG only invested in very safe (ie low returns) investments like government bonds I think so the returns were not great. I think that has changed.
If I was doing it now I'd definitely be investigating alternatives but I'm glad we did it as opposed to doing nothing, the money came in handy for buying all the necessaries at the start of the school year and the much larger amount for my son paid for his music tour of North America in year 10, about $7,000.
My daughter started journalism in Uni and didn't like it and dropped out after 6 months and took the rest of the year off. She completed another degree but took a gap year during it 'to have some fun in my life' .
As a result of having more than 12 months off she no longer qualified to receive the remainder of her entitlements, not a huge sum of money in her case but something to consider.

 

So in your daughters case what were the penalties/costs involved in her not continuing?

 

2 sides of the coin - pair of accountants used it for their kids, private schools k-12, graduated in 2013/2010. More than happy with it.

SNM looked at it and considered the alternatives - insurance bonds (tax free after 10 years ie by the tme kids get to high school but requires discipline to keep adding to the principal), save in the offset account (no interest earned/need to keep track of how much money you have contributed for the kids, effective from day 1, control over money etc, tax free), monthly contributions to an internet bank account (low risk, low interest, accessible, assessable, needs discipline etc).

We chose #3. Started at $100/month and increase it by $100/month each birthday (it gets expensive as they get older) but the amount set aside plus interest pays for their fees. Public system for the foundation studies then private/selective, so not withdrawing until yrs 5 or 7.

 

This is what we currently have set up but the interest rate is quite low (2% I believe) and the 'bonus interest' (1.99%) isn't paid if we draw on the funds.

Public vs. Private is likely to be more of an issue for us down the track if they don't make it into a selective high school.

 

In hindsight insurance bonds might have been the way to go but uncertainty over the returns (no headline rate of return), length of commitment & lack of product knowledge (on my part) led me to stick with the low risk option.

 

This is our issue, a real lack of knowledge and no spare time in the day to dedicate to learning about it which is why ASG may be a safer option for us as opposed to attempting to DIY via a financial advisor.

 

Are the savings in their names or just a sub account under yours?

 

In their names and the interest earnings are under the tax threshold for children at this stage. However it is set up we are listed on the accounts to be able to control them but all statements are issued in the children's names.

 

In the name of the lower income earner.

 

I did ASG. As somebody up top said, it's like forced savings. People more disciplined than me possibly do things in a more clever way, but it suited me because I didn't have to think about it. I have two kids in years 8 and 10. The contributions stopped when they hit high school and I get a cheque in January for about $25,000.
Scott

 

If I go down this path I'm not sure whether I am better off just starting each child off from scratch or taking the money out of their savings accounts and paying the lump sums in (I know from a tax persepctive the interest is tax free however its a very low return at 2%). Thoughts?

 

Not sure, Tim. There are sure to be better ways to do it. I just had a monthly direct debit set up and forgot about it. I can't even remember how much it was. Must have gone on for about 12 years. I told the girls that when it comes to tertiary, they're on their own - or on HECs.

 

Thanks, we are so time poor that if the non-ASG option requires us to regularly be on top of it (i.e. we can't just set up regular payments via a broker or financial advisor) we won't be taking that path.

I'm also inclined to go down the non-tertiary path in the current jobs climate.

 

An education bond is a far superior structure than what ASG offers. ASG is essnetially forced savings which allows you to access money for fairly specific educational purposes for the nominated child.

My understanding is an education bond is an investment structure (you've got a wide range of choices for the investment) which gives you additional tax benefits on the profits from those investments.

Essentially if you don't use the money over (I think) a 10 year period, you can access the profits tax free. If you use the profits (or capital) during those 10 years for education purposes, it's also drawn tax free. This generally isn't the case with a savings scheme.

I believe it's also fairly straight forward to change the beneficiary of the bond, so you can use it for your own ongoing education, not just the kids. The definition of 'education' can also be very broad. There are a lot of other rules around them which can be made to work to your advantage.

There's a couple of products around but it's been years since I looked into them. You'll almost certainly will need to engage a financial planner or an accountant to get it set up.

 

I don't remember exactly, when we took it out she was one year old and it was in the days of 13.5% interest rates, ASG's forecast returns were worked on a more modest 11% (!) (or may be around 8%, it was a long time ago) We probably took the smallest contribution option.
I do remember the final returns were so much less than forecast they paid annually instead of per term or something like that. I have an idea in her case it was in the region of maybe $500 a year or semester with a couple of years to go so we missed out on a couple of grand or so.
It depends obviously on how much you put in, I would have been really bummed to miss out on thousands.

 

The way ASG used to work is that the money I think was paid to the school - or something like that. Now the funds come as a cheque made out to me, which surprised me initially. Nobody checks where the funds go next.