As universities prepare to welcome back students, you might be finalising the financial plans that will help your children through higher education.
While the rewards of a high-paying graduate job can be huge, so too, are the costs associated with undergraduate degrees.
Careful financial planning can help to make your child’s experience that much easier, but there will still be some important decisions to make.
Keep reading for some financial dos and don’ts for helping your child or grandchild through their university education.
1. Do start planning as early as possible by building a nest egg
If your child is off to university this year, you’ll hopefully already have some funds built up to help them. If you are thinking about helping your grandchildren, on the other hand, now might be the perfect time to start putting a nest egg aside.
The earlier you start saving, the better chance you’ll have of providing your loved one with a financially stable start in life.
Specialist saving and investment products like Junior ISAs allow you to save or invest up to £9,000 (for the 2022/23 tax year). Open to UK residents under the age of 18, you can start paying into a JISA the moment the child is born.
There are two types to choose from – a Cash, and a Stocks and Shares option – and both are incredibly tax-efficient. Any interest on a Cash JISA is tax-free, while gains on investments in a Stocks and Shares JISA are free of Income Tax and Capital Gains Tax (CGT).
At the age of 18, the money can be withdrawn or moved into a full adult ISA.
2. Do teach your child or grandchild these essential budgeting lessons
However you choose to save for your child or grandchild, there’ll come a point when responsibility for the funds must pass to them.
When this time comes, you’ll want to know that they are armed with the financial knowledge to use the money prudently and effectively.
Be sure they are aware of:
- The importance of budgeting and the need to pay household bills, rent, and tuition fees before allocating whatever remains
- Managing debt and understanding the difference between high-interest debt like credit cards and the low interest attached to a student loan
- The need to maintain an emergency fund to tide them over if unexpected costs arrive or an expected payment is delayed.
Financial lessons could be key to ensuring your loved ones can manage their money, so start early.
3. Do ensure your financial expectations are realistic
A survey conducted in 2021 by the Association of Investment Companies (AIC) looked at anticipated versus actual student debt.
The report found that while students anticipate finishing university with an average debt of around £37,800, parents estimate an overall debt of just £24,800. The official average figure for those who finished their course in 2020 was £45,000.
Make sure that you and your child research the university’s course fees and local house or rental prices to ensure your financial expectations are realistic. This will give you the best chance of saving and budgeting appropriately.
4. Don’t assume that paying fees outright is always your best option
If you have sufficient funds to pay your child or grandchild’s course fees outright (thereby avoiding the need for a student loan), this might seem like your best option. But this won’t always be the case.
While a student loan might feel like burdening your child with unnecessary debt, there are some ways in which a student loan isn’t like a loan at all. For example, a student loan:
- Won’t affect your child’s credit score
- Is only paid off once their earnings cross a specific threshold
- Will be written off if it isn’t paid off within 30 years.
These factors could mean that the money you have saved could be more beneficial elsewhere. You could use it to clear your child’s high-interest debt, for example, or to help toward a deposit on their first house.
5. Don’t forget to seek financial advice
There is no “right” way to save for your child’s future, and your personal circumstances will dictate the best use of the money you save.
At Hartsfield Planning, we get to know all of our clients and their finances through our thorough and holistic approach. This means that we are ideally placed to help you decide on the right option for you.
Whether you’re looking to build a nest egg or want help deciding on the best use for your funds, be sure to contact us.
Get in touch
Please get in touch now to find out how our team of expert planners can help you and your child as they head into higher education.
Please note
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.