Recent figures show there have been 25,000 fewer university applications this year – with the rise in tuition fees to £9,250, and an increase in interest rates on student loans (up from 4.6% to 6.1%) identified as the key factors. Coupled with the Institute of Fiscal Studies report that revealed three-quarters of graduates will likely never pay off their student loans, the issue of how to afford university fees looms large in the minds of parents. Nobody wants their son or daughter to begin their adult life with huge debt, and to face the prospect of being saddled with the repayments forever.
For many young people, their only hope of easing the financial burden is to receive help from their families. But not all parents and grandparents are fortunate enough to have the £45,000+ that it takes to fund a degree stashed away. However, there is a way to ensure that the youngsters in your family have the money they need to go into higher education – start saving 18 years earlier! It’s never too soon to create a university fund – and even if the baby in your life doesn’t grow up to be an academic, there are plenty of great uses for the investment pot you’ll have nurtured.
One method open to canny investors is the children’s Stocks and Shares ISA (Individual Savings Account). For an affordable amount each month dependent upon your situation this is a way of moving money to one side and allowing it to grow over the 18 or so years from birth to leaving school. 2017/2018 tax allows up to £4,128. The savings are tax free and the capital can come out gradually over the four or so year university period, not necessarily needing to take it all out in the first year. This allows the remainder capital further time to develop for the latter years fees.
Another way of helping children get on in life would be to start a pension. While it might seem slightly odd to consider later life planning for a newborn, this is a method that can really pay off. Under the current rules, a parent or grandparent can invest up to £3,600 a year into a pension and get tax relief. In 2017, this means that basic rate tax payers could invest £200 per month and the fund will increase to £250 with the tax relief. While the fund won’t be available to use when they go to university, having a sizeable amount in a pension fund means they can take ownership of it at 18 knowing they have options. With the guarantee of thousands of pounds already saved towards retirement, a big financial worry will be eased from the beginning of their working life. So those student loan repayments won’t hurt quite so much.
Either with or without age restrictions, starting investment savings early and educating children about what you have done and why will offer them a greater understanding of the importance of financial planning. This will also help put them in a position where they could make better financial decisions in later life. With the right advice, parents and grandparents can work together to contribute into an investment portfolio to fund the child’s university ambitions, home deposit or any other life expense. The great thing about holding a fund over almost two decades is that you can take advantage of the benefits offered to those willing to leave their money in the fund for a long time. If the investments see a good return, you may be able to foot the bill without having to turn to student loans, or borrowing elsewhere.
If you’d like to talk specifically about the investment options for you and your family, do come and take advantage of our free consultation. We’ll be happy to help you find the best way to make your investments work for you. Call us on 01638 429975 or email firstname.lastname@example.org