Record low wage growth - impact on family budget and school fees

In late 2017, Australia’s annual wage growth rate fell to its lowest of 1.9% since the recession in the 1990s. Come 2018 and the outlook for Australians is still quite dim with only a slight rise in wage growth to 2.1%.

While this means that wage growth and inflation are approximately equal, these economic conditions are expected to worsen with inflation expected to rise to an average of 2.25% by the end of the year.

The inverse relationship between wage growth and inflation is having a direct hit on families across the country. The household budget of many is tightening, with the cost of living continuously outpacing any wage increases.

Source: ABS

School fees adding to the financial stress

With over $10 billion being spent by Australian parents on private school fees each year, it’s no surprise that this has become the largest or second largest household expense for many families. The cost of education eats up more of the household budget than what some may expect as parents are now investing up to 35% of net income for school fees.

Over 40% of Edstart customers are spending at least $20,000 on school fees this year and this amount is not expected to decrease any time soon. Based on our research of 164 schools across Australia, fees have inflated by an average of 3.6% in 2018 and 15% of these schools have increased fees by 5% or higher.

When comparing these figures to the stagnant wage growth rate of 2.1%, it is clear that pressure will continue to build on parents to meet their school fee commitments.

Coping mechanisms to the rise of school fees

It has become the reality for many families that their current earnings are simply not enough to pay for all of these household costs. Our recent study of 500 families found that parents are forced to look at alternative options to afford the high price of education with only 51% being able to fund school fees directly out of their disposable income.

The other half are relying mostly on borrowing money from other sources to pay for school fees. Credit cards are one of the more popular options among parents. However, turning to credit card debt can result in paying a lot more for school fees than what is actually needed because of the high interest rates of up to 22% per annum.

Parents are also looking into financial assistance from family members just to afford the hefty price of school fees that will only get worse given the rate they are inflating.

How Edstart have helped families across Australia

Here at Edstart, we’re pleased to be relieving parents from the financial stress of school fees. We pay school invoices upfront and then work with each family to set a flexible repayment level that can extend after the kids have left school.

As Louise Carriage, currently using Edstart for her children, said when interviewed by the Australian Financial Review: “The fact that we can pay Edstart off weekly, rather than lump sums to the school, has made a huge difference. We've got a $30,000 year coming up when they're in years 11 and 12, so spreading out the impact of that will be a godsend.”

We’ve designed our payment plans to be simple and flexible to fit around the household budget and when parents get paid. We also cover extras that schools charge like levies, uniform, textbooks, excursions, extra-curricular activities and any outstanding fee balances.

Related articles

How many hours do you need to work to pay your school fees?

5 ways to fund your private school fees