If you have children or grandchildren under the age of 20, you’ve probably considered putting money away to give them a head start for when the time comes to move out of the family home. Whether that’s to go to university or find their own property, we all know that a bit of spare capital in your early twenties can make a world of difference.
But, is it your responsibility to provide money to keep younger generations financially afloat while they are studying? Or will they learn more if you let them fend for themselves and find their own feet in the world? Let’s look at the options in more detail…
1. Should we be saving money toward our children’s education?
It’s not a requirement that comes with parenting (or grandparenting). However, if you feel your children will benefit from it, there’s nothing wrong with putting money aside to improve their chance to thrive when they reach adulthood.
Of course, you need to make sure that you can afford to do so. There are many things to consider, including:
- Whether you need to save for more than one child
- How inflation will affect the amount required
- Should you save or invest?
2. Won’t their Student Finance loans and grants cover everything?
In the past few years, tuition fees alone have almost trebled. However, this is covered by student loans, paid directly to the university. It is the other living and education costs which might cause issues.
The level of maintenance loan your child receives depends on their parent’s combined income. That means that your child could receive a lower amount than other students, regardless of whether you plan to use that income to bridge the gap.
3. What about a job?
It’s reasonable to expect your child or grandchild to have a part-time job during their studies, to support themselves financially. However, there are three things to keep in mind:
- Some universities forbid students from being employed during term time
- Most jobs which are suited to a student’s schedule are zero-hour contracts, which means that the hours they do get will not be guaranteed, and neither will a stable income
- Working, even part-time, could have a positive or negative effect on your child’s learning, including taking time away from studying or impacting their health and impeding the quality of their assignments
4. How much should we aim to have ready for them?
There’s no one-size-fits-all answer for this. Three factors will play into it:
- The amount your child or children will need
- The amount you are willing or able to put away in the meantime
- How many years you have until the money is needed
Talking to a financial planner will give you much better insight into what your child is likely to need and how you can get there.
5. When, and how, should we start saving or investing?
When: As soon as possible. The earlier you start, the longer you will have to reach, and possibly exceed, the target amount.
How: That will depend on your goals, the age of your child(ren) and your attitude to risk. There are many options available, including:
Child Trust Funds (CTF): Though they have since been discontinued, if a CTF was opened on behalf of your child before 2011, the account can still be used to save up to £4,260 per year, tax-efficiently.
Junior ISAs: These are available for any child born on or after 3rd January 2011. Like other forms of ISA (Individual Saving Accounts) the Junior ISA is tax-efficient and has an annual deposit limit. Though it is much lower than the adult ISA limit, at £4,260. These accounts are available in Cash, Stocks & Shares and combination types. The named child can take control of the way both Junior ISAs and Child Trust Funds are invested at the age of 16, but the money held therein cannot be accessed until they turn 18. One person cannot hold both types of account simultaneously.
Regular Saving Accounts: If you want to save into an account which is accessible, a Regular Savings Account may be the answer. Though these are likely to come with lower returns and are more tempting to dip into before the child reaches adulthood and might be spent frivolously. These accounts require a minimum deposit every month and can be used to get your child into the habit of saving regularly from a young age.
6. What will we do with the money if our children decide against university?
Just because the money is earmarked for university doesn’t mean that it won’t help them to get ahead in life if they decide that full-time study is not the right path for them. The savings could be contributed toward other uses, such as the deposit on a house, or paying the living costs while they undergo an apprenticeship.
Engaging with a financial planner will help you to create a strategy which will enable you to meet these goals and more beyond. To get started, get in touch with us on 01664 77 88 99.