child and mum

How to financially prepare for your child's future

Do you have hopes of your child going to university in the future? If so, here’s why – and how – you might want to start saving today:

University may seem a world away when your children are still at school, but if you have hopes of them studying for a degree (and beyond), it may be prudent to start saving sooner rather than later.

The cost of university

Did you know that English graduates have the highest debts in the developed world? According to research* from the Institute for Fiscal Studies (IFS), the average debt for students leaving university is £50,000.

These high costs are down to a shift in the way the government funds higher education, according to the IFS, with tuition fees trebling in 2012 and maintenance grants being dropped.

This isn’t meant to be off-putting; student debt is ‘unsecured’ and therefore isn’t the same as many other types of debt, such as a mortgage. How much students repay also depends on how much they earn after university – and the debt is normally wiped 30 years after the first repayment, if the total hasn’t been cleared.

However, having a large student debt could have other implications. 

The future impact

When applying for a mortgage, some lenders may factor in how much student debt an applicant has. If repayments are significant, it may impact their ability to secure a mortgage.

It’s important to remember, though, that lenders are not looking at total debt; rather they are considering applicants’ outgoings when assessing affordability, which may include a student loan repayment.

Start saving today

As a parent, you want to help your children in any way you can. Chances are that the cost of living and tuition fees will rise further by the time your little one reaches university age, so the earlier you start saving, the better.

And by saving now, even if your child chooses not to go to university, you’ll still have a pot of money to help them out on their next stage of life.

If you are in a position to, start saving now and feed your pot little and often. This means you won’t have to find large sums of money when they’re needed later in life.

Consider a Stocks and Shares ISA

As an alternative to squirrelling your money away into a traditional savings account, you might want to consider investing. Investing can be a great way to grow your money over time, if you’re willing to take on an element of risk.

A Zurich Stocks and Shares ISA, for instance, is suitable for medium- to long-term investments of five years and beyond. By accepting a level of risk with your money, you could benefit from tax-free growth, with potentially higher returns than saving in cash.

The value of an investment can go down as well as up and you may not get back the full amount invested. Investments should only be considered for long term goals (5+ years).

With a Stocks and Shares ISA, your current allowance for 2018/19 is £20,000. Bear in mind that this allowance doesn’t get carried over to the next tax year, so you’ll lose it if you don’t use it.

If you pay in as much of the allowance as you can early in the tax year, it could give your investment greater potential to grow.

Consider what you could do now to help prepare financially for your child’s future.

What now?

If you would like to know more about the Zurich Stocks and Shares ISA, click here.

Sources:

*https://www.ifs.org.uk/publications/9334

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