The Lazy Person’s Way to Pay for Education

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As far as politicians go, I don’t mind Peter Costello. Sure, I’m as puzzled as the next guy by his trademark smirk and schoolboy hair, but you’ve got to respect a bloke who can stick out a job for 12 years while his boss steals his thunder at every turn.

Costello could be described as the Muriel of Australian politics – although Muriel eventually did get married. The closest our Treasurer gets to running the show is Budget day, and given he’s done a dozen of them he seems to have all the bases covered.

On Budget night Cossie appeared to have taken some fiscal expansion of his own – he was as wired as a Logie winner.
“This is a bold plan,” he crowed, “that would set Australia up for generations.”

In contrast, his opposite number, Wayne Swan, was every bit a runner-up. All he managed to blurt out were things like “it looks good . . . it’s responsible . . . it’s very clever”.

There’s no denying that the Government has run a tight ship over the past 12 years. It’s paid back debt and brought the budget back into surplus – in other words, it has taken more of our money than it has needed to run the show.

Yet that’s only part of the story.

The other side

Like all politicians, Costello is happy to take credit for things that are largely outside of his control. Likewise, he’s happy to handball the negatives that land in his lap (such as the last three interest rate rises).

Over the past decade we’ve borrowed more than a figurative cup of sugar from our neighbour, China, and we’ve been swept up in its wave of prosperity. China is often described as the world’s manufacturing factory, and Australia is supplying the resources to build those plasma televisions.

Once built, they come back to our fine shores, where they are often purchased on a buy-now screw-you-later, no-interest time-bomb.

How it rounds out

The consumer binge accounts for the second helping hand for Costello. Businesses and the banks are making out like bandits on the back of consumer credit – and are legally obliged to share a third of their spoils with the Government.

Enter Costello doing his best to impersonate Robin Hood.

With Kevin Rudd more popular than a doughnut on the set of The Biggest Loser, the Reserve Bank was worried the Government would spend too much of our money trying to impress us, and in the process put pressure on interest rates.

Given that the Prime Minister has promised us he’s the best bloke to keep interest rates low, he certainly didn’t want to give the impression he was responsible for pushing the battlers closer to an interest-rate Armageddon.

So, flush with cash and nowhere to spend it, Costello decided to borrow from last year’s big idea – the Future Fund. Enter the $5 billion Higher Education Endowment Fund, the earnings of which will fund capital works and research at universities.

Although critics argue that the Government is just making up for the money it has slashed from education over the past 12 years, no one is suggesting that it wasn’t a clever political move. So clever in fact that in Labor’s budget rebuttal, Rudd saw the Government’s hand and raised it – allocating even more money to education.

No politician who wants to be elected is going to argue against taking money out of a specifically designed education fund. It’s like me trying to justify raiding the bill jar to buy a six-pack and a pizza.

Strip away all the grandstanding and you soon start to realise that managing the country’s coffers is not unlike managing our own money. So let’s follow Costello’s lead and apply his skills to our own budgets.

Creating the image

Costello understands that a hot button for most of us is education, and he wants to take credit for being the bloke who sets aside some excess cash to improve the quality of university education.

He understands that whoever takes over his job may well liquidate his legacy when the economy eventually turns. That’s why he gave the fund a grandiose name, which turns up the guilt a notch or two for whoever tries to make a grab for the money in the future.

Learning the lesson

The same principles apply to managing our own budgets. Apart from paying off the mortgage, providing for the children’s education is the number one goal of Australian families. Yet in these days of record personal debt and negative savings, few families are adequately prepared.

Rather than socking away money into a general savings account, which may be raided some time in the future, families would be wise to follow Costello’s lead and set up their own higher education endowment fund.

The best way to do this is via an old-style investment bond, which can be made in a child’s name, and provides an incentive to regularly invest small amounts into Australian and international shares.

The kicker is that if the proceeds are used for educational purposes they attract significant tax concessions, and are capital gains-free if they are held for longer than 10 years.

There are a number of companies that offer this service. The market leader is Australian Scholarships Group but, sadly, it should be avoided at all costs because of the ridiculously high rates and heavy penalties that apply should your child decide not to go on to further education.

In the past ASIC has whacked ASG when some of the group’s representatives “made false and misleading statements and engaged in misleading or deceptive conduct”.

Barefoot has long harboured a desire to start up a not-for-profit education bond, but that’s not likely to happen any time soon. Until it does, check out other investment bond offerings – and use Costello’s tax cuts to kick-start the program.

Tread your own path!

Photo: www.flickr.com/photos/slimjim/2443686258/

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