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How to invest smart today to graduate debt-free tomorrow

Emma-Lou Montgomery

Emma-Lou Montgomery - Fidelity Personal Investing

Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.


As many as 36% of students on courses at universities and colleges in the UK are forced to turn to overdrafts, credit cards and payday loans just to pay their rent, leaving many in debt.

According to, which carries out a survey of over 2,000 undergraduates every year, the maintenance loan that students can apply for is simply not enough to live on.

With parents chipping in, on average, £2,542 a year for accommodation costs, that does not go far when, according to this latest survey, students spend an average of £126.4 a week on rent, equivalent to £547-plus a month.

Part of the problem could stem from a misunderstanding about just how much living costs add up to for students today, which can vary wildly, even between students and their parents.

For instance, while university students and those planning to go to university expect to graduate with an average debt of £41,697, that is much lower than the Institute for Fiscal Studies estimates. The IFS says the average student will graduate with debt of more than £50,000.

But students’ expectations are at least more realistic than their parents’, who think that their children will graduate with an average £24,145 of debt – less than half the IFS estimate.

It is not for want of trying to help either. According to the Association of Investment Companies, help with university costs remains the top financial priority for 48% of parents, with help towards a first home coming in second (34% of parents).

The good news though is that there are ways to bridge the gap and ensure that if you have a child or grandchild heading off to college or university, you can, with a little planning, help them to graduate without having the need to turn to further borrowing to help them through.

Obviously the longer you have to save, the better. In addition, using tax-efficient wrappers like your annual ISA allowance and the child’s Junior ISA allowance, can help make it easier to save more for their future.

After that, getting invested and staying invested are key, with the final lesson being that slow and steady wins the race, as figures from Fidelity International show.

An investor who began investing regularly in the FTSE All Share 30 years ago (1 February 1990), making an annual contribution of £1,000 during that decade and increasing this to £2,000 a year between 2000-2009, and £3,000 between 2010-2019, would have seen their overall investment of £60,000 grow to £166,776 by the start of this month. Please remember past performance is not a reliable indicator of future returns.

By contrast, an investor who only invested in the FTSE All Share when the market hit a cyclical peak, before a downturn, would have more than £50,000 less. Despite also setting aside £1,000 a year, increasing this by £1,000 each decade between 1990 and 2020, poor timing resulted in them investing these savings at the top of each investment cycle - meaning their original investment was worth just £114,767.

Better, but still not quite as good as the steady investor, is someone who chose instead to invest in the FTSE All Share when the market was at its lowest. They too saved the same amounts each decade, but, even with a gift for good timing, they were unable to match the steady investor’s returns. In this case the investor would today have a pot worth £144,215 - still £20,000 less from the same overall investment than the investor who made a slow and steady investment all the way.

By investing regularly, for as long as possible, you can help the next generation of graduates reach adult-hood without the burden of all that debt that has blighted the early lives of so many students before them.

More on ISAs

Five year performance

(%) As at 31 Jan 2015-2016 2016-2017 2017-2018 2018-2019 2019-2020
FTSE All Share -4.6 20.1 11.3 -3.8 10.7

Past performance is not a reliable indicator of future returns

Source: Fidelity International, January 2020, returns are based on total return in GBP of the FTSE All Share, and returns from the Morningstar UK Savings 2500.

Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.

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