If you’ve just waved Junior off to nursery, or your 18-year-old is about to head off to college or university, this September is sure to bring about big changes. With inevitable tears, tantrums and teen angst to deal with, the last thing you want on top of that is a meltdown when it comes to your finances.
If your chick’s about to fly the nest or take their first tentative steps at Big School, then hopefully you have your finances under control. But if you’ve got years yet before yours do the same, then it’s time to get cracking and put plans in place to pay for your child’s education.
Do your homework
If you’re considering private education, then be prepared to dig deep. Fees for day pupils at prep schools can range from £5,000 to £15,000, or more. Once they get to senior school level you’re looking at between £10,000 and £20,000, while boarding fees tend to creep well into the £30,000-£40,000 bracket.
Remember too that these are only the school’s fees. You also need to factor in the cost of uniform, music and other extra-curricular lessons, books, trips and other incidentals. All in all, your child’s education is probably going to be the second-largest expense, after your mortgage.
Then don’t forget university and college costs. Long gone are the ‘carefree’ days of being a student. Today further education is a serious financial commitment. And where they study can have an impact on the cost. Universities and colleges in the UK can charge full-time students at university in England up to £9,250 a year in tuition fees, while Welsh students pay £9,000 at home but the lowest of all UK home students - only £3,900 - if they study elsewhere in the UK, with the Welsh government picking up the rest of the bill.
Remember time is on your side
For medium to long-term investors, the stock market wins hands down over cash when it comes to paying for school or university fees. Especially when you reinvest the dividends you earn along the way. And the latest data also makes it clear that the sooner you start, the better; even within the same tax year.
Fidelity’s analysis shows that if you invested a lump sum of £1,200 in the FTSE All Share at the end of each tax year since 5 April 2010 (a total of £12,000) you’d be left with a pot of £16,594 after 10 years.1
If however, you had regularly invested £100 in the FTSE All Share every month at the start of each tax year since 6 April 2009 (again a total of £12,000) for the past 10 years, you’d now have a pot of £17,803 - a significant difference of £1,209.2 Please remember past performance is not a reliable indicator of future returns.
Don’t let volatility unnerve you
Investing regularly and diligently is essential to your long-term wealth. When you’re investing for the longer-term, resist tinkering with your investment choices too much and try not to focus on short-term volatility. Given time, stock market gyrations and the odd spell of turbulence will be ironed out. History shows that ‘toughing it out’, is better than running for cover.
The best days in the stock market very often follow hot on the heels of the worst ones, so the worst thing to do is panic and sell at times like these.
Use your ISA allowances
You can make your hard-earned money work even harder for you by protecting your gains from the tax man. Make sure you utilise your annual ISA allowance and remember that every adult has one, so max out your ISAs first.
Don’t forget too that children have their own Child Trust Fund (CTF) or Junior ISA (JISA) allowance. While the money in a CTF or JISA belongs to your child, and they cannot access the money until they are 18, that enables you to grow another pot of money to help fund at least part of their college or university years. From the age of 16, they can also save into an adult cash ISA in addition to whatever contributions are made into their CTF or JISA.
Make it a family affair
Grandparents, aunts, uncles, godparents and anyone else who wishes to can contribute to your child’s CTF or JISA.
Given the time-scale and the better potential returns for stock market investments to beat cash over the long-term, offers to open a cash account for your child could be channelled into a stock market invested CTF or JISA instead.
Five year performance
As at 10 Sept
Past performance is not a reliable indicator of future returns
Source: FE, as at 10.9.19, in local currency terms with income reinvested
1 Fidelity International, April 2019, FTSE All share total return in GBP 5 April 2010 - 29 March 2019 and does not take into account the impact of any charges or fees.
2 Fidelity International, April 2019, FTSE All share total return in GBP 6 April 2009 - 29 March 2019 and does not take into account the impact of any charges or fees.
Important information The value of investments and the income from them can go down as well as up and investors may not get back the amount invested. Eligibility to invest into an ISA, Junior ISA or pension and the value of tax savings depends on personal circumstances and all tax rules may change. Junior ISAs are only available to UK resident children under 18 who do not have and are not eligible for a Child Trust Fund (CTF). Please note that if your child was born between 1 September 2002 and 2 January 2011 the Government would have automatically opened a CTF on your behalf so your child will not be eligible for a Junior ISA. The investment is locked away until the child reaches 18 years old. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give investment advice. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.
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