The word of the day is ‘deflation’. Governments fear it. People misunderstand it. And apparently, without proper intervention from the central bank, it’s threatening to invade the Lucky Country.
If you’re unfamiliar with the term, deflation is simply the opposite of inflation. For you and me, that means the cost of living gets less expensive, rather than more expensive, with time.
Now let me ask you something. Does that sound like a bad thing?
But when was the last time you opened a utility bill and thought, wow, that’s a lot less than I was paying a few years ago? Or left the supermarket, movies, or pub thinking your dollar buys way more than it did this time last year?
If you’re like me, probably never. The only ‘bargain’ out there at the moment is at the petrol pump. And that’s only because we’re so accustomed to being fleeced that paying $80 instead of $100 for a fill-up seems a bargain. It’s all rather absurd.
And for those of you who are parents, please do write in if you feel that raising a child is getting cheaper. I’d be happy to share your story with the rest of our members…and with my wife. As a new dad, I have a niggling feeling that providing for my daughter through her uni years is going to cost me a lot more than it cost my parents.
On a personal note, my daughter turned one recently. To celebrate, she invited a dozen of her closest friends over to play in our backyard. Fortunately, the weather held out. Nothing like twelve wet toddlers to put a damper on your party.
While the littlies cavorted in the sandbox and slid down the 80 centimetre plastic slide, the adults sipped drinks at the sedate pace that you’ll likely only see parents with young children manage.
The smell of grilled onions and bratwursts drew a handful of those adults away from our improvised playground to join me at the barbie. Despite some concerted attempts to steer the conversation towards sports and the latest films, the focus inevitably turned back to the children.
Only one year ago, they couldn’t focus, hold up their heads, or distinguish the cat from the dog. Now they were crawling and toddling around like tiny maniacs. And they’d long since chased the cat to the relative safety of our front yard.
‘Before you know it they’ll be off to uni,’ one particularly forward looking mum commented.
‘Better start saving now,’ one of the dads added. He threw a wistful eye at the ice filled cooler, clearly wondering if it was too early to crack open a second James Boags. ‘You know fees are set to go through the roof.’
Student loans coming to a family near you
What he was talking about, of course, is the current government’s push to deregulate university fees.
Having attended the University if Michigan in the US, I’m not highly familiar with uni fees Down Under. But according to The Australian, the system currently works something like this:
‘Under the existing arrangements, students are charged nationally uniform fees depending on what course taken. The debt is accrued under the commonwealth’s Higher Education Loan Program and paid off after graduation.
‘Top-tier degrees, including medicine, dentistry, law, accounting and economics, attract a charge to students of $10,266 a year… The lowest level of contributions is $6152 a year, levied on university courses in the humanities, social and behavioural sciences.’
Estimates vary, but realistically you can expect deregulated fees to go up two to three times from their current rates in real dollars (adjusted for inflation). That means tuition fees in the range of $15,000–30,000 per year. Students can also expect to pay higher interest rates on their larger loans.
Depending on who you talk to — meaning what side of the debate they’re on — deregulation is either a fair and essential free market reform that will see Aussie universities offering top tier education. Or it will restrict university degrees to the wealthy, further widening the income gap between rich and poor.
There are a lot of other positives and negatives to this debate. I won’t delve into those here. But the point is that education, like most every other aspect of our lives, is getting dearer…and dearer.
Although deregulation was recently derailed, don’t expect this change to go away. Regardless of whether university fees are deregulated by this government, or a future incarnation, the writing is on the wall. It will happen.
So much for deflation.
Why is this important?
As I often remind members of the Guild, you should always be thinking ahead. And that means doing your best to prepare for the hurdles and expenses life has in store for you and your family.
Maybe you have children who are still looking at attending uni. Or maybe those days are behind you, and it’s your grandkids who will be going. Or your nieces and nephews…or their kids.
With the price of higher education set to far outpace inflation — and interest rates — you have two options. Do nothing and leave the next generation of your family saddled with massive HECS debt to pay off. Or invest a small part of your money each month for them to ease that burden. And encourage the rest of your family to do the same.
Benefits of membership
That’s where membership in the Albert Park Investors Guild really pays off. You can avoid the excessive fees of fund managers eating away at the hard earned money you’re putting aside for your family’s education. And you know better than to accept advice from any financial planner working on a commission-based paycheque.
And members have access to all our special reports, full of valuable information. These include:
The Investors Starter Guide
The Simple Way to Invest and Profit with International Stocks
The Secret Strategy of the Rich: How to Maximise Profits and Minimise Losses
Importantly, of course, our members also have access to all three of the Guild’s portfolios. Even in today’s turbulent markets, these have all been performing exceptionally well.
If you’re investing for your kids’ — or grandkids’ — education, you’ll want to carefully consider how much time you have before they head off to uni. We’d suggest treating their enrolment date much as you would — or did — treat your own retirement date.
According to Meagan Evans, the Guild’s Investment Director:
‘For example, if you have more than ten years to retirement (or until you need to access your investment for other purposes), you can afford to expose yourself to a bit more risk. In this case, you have more time to weather downturns in markets and recover from possible losses. This allows you to allocate a higher proportion of your investments to Australian shares, international shares, and property investments.’
In my case, with a one year old daughter, I’m allocating the investments for her education much as I would if were planning to retire in 17 years. Your personal situation will, of course, vary.
And remember, regardless of what you’re hearing from the mainstream media — and the temporary savings you’re realising at the petrol station — life is not going to get any cheaper. Living a decent, comfortable life is going to cost you and your family more in ten years than it does today. And it will cost still more in twenty years…and in thirty.
So remember, plan well ahead of tomorrow. And invest wisely, for yourself, and for your family. If you want more details on how to do that, click here to find out more.
for the Daily Reckoning Australia