Every parent knows that having children is an expensive business. What you might not realise is how long that expense will last. A survey of Wesleyan customers showed three quarters of those with children under the age of 21 said they expected to support them financially into their 20s and beyond.
Here we look at some of the potential costs facing the ‘Bank of Mum and Dad’ over the years, as well as some of the savings and investment options available to help ease the burden.
School
Figures from the Independent Schools Council show the cost of private education for day students is now more than £200k for children starting school at five and finishing at 18. This is clearly a lot of money, but parents who would like their children to go to private school can make it more affordable by saving regular amounts each month from the child’s birth.
If, for example, on the birth of their child, parents started saving £10,923 per year (or £910 per month) in a savings account paying interest at three per cent gross per annum, they would build up enough money over 18 years to cover the entire cost of private day school education.
University fees
Three years of university could also be a costly expense. According to student website push.co.uk, those who began their studies last autumn could face total debts of £53,400 on graduation.
More than two thirds of Wesleyan customers surveyed are already saving specifically for their children’s university fees. However, many also said they would expect to pay out of their own monthly earnings, and 38 per cent said they will have to ask the child’s grandparents to help pay towards university education.
The property ladder
The average deposit needed by a first time buyer is now almost £28k, so it is not surprising that 60 per cent of young people ask their parents for help in getting a mortgage.
As the deposit required by mortgage lenders increases, it is likely that so too will the average age of first time buyers. In recent years, this has risen to 30-years-old, which indicates that parents who want to help their children onto the housing ladder may be supporting them for longer than they expected.
Plan ahead
If you intend to provide financial help to your children, then it is important to start planning your finances as soon as you can. However, there are a number of considerations to be aware of.
When will you need to access the funds? It is important the money you put aside is available when you need it. For example, if you are saving for university costs, then the money can be locked away until the child starts their degree. However, if you are saving for school fees then you will need the money sooner and on a more regular basis.
How do you want to access the funds? When you cash in an investment you might want to take the whole amount as a lump sum if. However, school fees will need to be paid regularly between the ages of five and 18.
Are you using tax efficient savings? Individual Savings Accounts (ISAs) allow your savings to grow free of capital gains and income tax, while providing easy access. The ISA allowance for 2013/14 is £11,520, of which half can be put into a cash ISA.
Saving into a trust would protect and earmark investments for your children during your life and even after you die. They can provide financial security for your children at various stages of their life and are a good way to earmark investments for different purposes.
However you intend to provide for your child’s future, talk to a financial adviser who will be able to explain the savings and investment options that are best suited to your own circumstances.
References available on request.