Student Debt - Financial Cancer of the Next Generation
There has long been widespread media coverage of student debt and its growing impact on New Zealand. For the individuals burdened with the debt it is becoming life altering.
The Government however lists student debt in the country's balance sheet as one of our biggest assets. The flip side is individual New Zealanders are responsible for this amount as a consequence of having undertaken tertiary study.
It is now recognised that this debt at an individual level is having a significant impact. It has a major influence, or affect, in many areas including
- Choice of courses studied
- Work options on graduation
- Residential / travel decisions
- Reduced net income with automatic loan repayments required
- Borrowing capacity - home ownership restricted
- Family Planning - women especially concerned with repaying debt
- Financial stress - burdened with long term debt
Significantly the cost of tertiary education continues to rise at an alarming rate. This debt includes student loans, bank overdraft, personal bank loans, credit cards and loans from family members.
It is now apparent that as parents, or grandparents, one of the best ways we can provide for our children, or grandchildren, is to see them graduate without debt.
There are many ways to achieve this and we believe the most convenient is to save regularly over as long a period as possible. Based on today's cost of education (course fees, accommodation, travel, text books etc) a target of $60,000 per child is not unrealistic. Some helpful websites include Sorted - www.sorted.org.nz and Careers NZ - www.careers.govt.nz .
There are three ways to provide for these anticipated future costs - debt, current cash flow or save.
For those who choose to save there are many different savings plans, including bank accounts, available to achieve this target. Irrespective of what plan, or account, you use the four things that will impact on the success of your savings plan areTime
Of the above both the Time and Amount Contributed are controlled by you. When you start and how much you save are your decisions.
The Investment Performance will play a big part in the total amount accumulated and it is impossible to determine which fund, or account, will perform the best over a long period of time (+ five years).
The last significant factor on the account balance is the Fees charged by the fund manager, or bank. Over a long period of time the fees charged to establish, maintain, invest or early terminate will have a big impact on the account balance. These fees are clearly identifiable and can be managed to provide the best outcome for you, the investor.
If you would like to discuss, tertiary education costs, or alternative savings plans please contact us.