Calculating the cost of school fees
One of the best ways to give your children a head start in life is to make sure they receive a well-rounded education. After all, good grades are important but extra-curricular activities such as sports and school trips also play a key role in their development.
Careful financial planning is essential to ensure you can cover the various costs when they arise. The first step is to figure out how much to put aside. The initial decision you must make is whether to send your children to a state or private primary school.
According to the Independent Schools Council, the average cost for a private school (primary and secondary) in 2016 is £5,373 per term or £16,119 per year.
This means you could be committing to 14 years of fees. But before you start the calculations, there’s a catch. School fees have increased by 3.5% since 2015 – the lowest annual increase since 1994. So when you’re figuring out the total cost, best to allow for a 4% jump in fees each year.
On this basis, you’ll be spending just short of £295,000. Of course, you could save some money by sending your children to a state primary school and going private for the seven years of secondary school. Nonetheless, you’ll face a bill of slightly more than £127,000.
If you decide to send your children to state primary and secondary schools, you don’t have to worry about fees, but there are other costs to take into account. According to the Aviva School Sums Index, you need to allow up to £22,500 for each child to pay for things like uniforms, books, lunches and extra-curricular activities. The survey highlighted the most expensive outlay as out of school care, at an average of £558 per child per year.
Parents that actively hunt for state schools that have been reviewed favourably by Ofsted, will sometimes have to consider the cost of moving house to be in the right catchment area. Families not fortunate enough to live in walking distance of their selected school may also have to think about the cost of travel, which can be over £300 a year.
Chipping in towards university fees
Once your children finish school, they may move on to university.
According to the Sutton Trust, the typical UK student graduates with £44,000 worth of debt. So you might like to help out with university fees too or contribute towards some of the other costs of student life such as accommodation, books or a semester abroad.
All told, you could face a total cost of £339,000 if you choose to pay for primary and secondary school fees and university fees. This figure drops to £171,000 if you don’t pay for primary school. Either way, it’s a significant financial commitment.
Managing your finances
The sooner you start putting money away, the better – ideally as soon as your children are born. But then you must decide between saving and investing. Which option you choose typically depends on the timescale involved and the amount of risk you’re willing to take.
A useful rule of thumb is if you need your money within three years, put it in a savings account. If you won’t need your money for three years or longer, then you might consider investing it.
Next, you have to decide where to keep your money. That’s easier said than done when there are so many choices – traditional savings accounts and cash ISAs, investment options such as stocks and shares ISAs and Self-Invested Personal Pensions (SIPPs), plus junior versions of these accounts targeting younger savers (for example, Junior cash ISAs and Junior SIPPs).
Put your money to work
If you decide to send your children to a private primary school, you may need to start paying fees within three years, in which case you might be better off saving.
You can open a savings account with a bank or building society, although a cash ISA is worth considering too.
Looking ahead to secondary school, or if you’d like to start saving towards university fees, you won’t need your money for at least 11 years. In this case, you may want to consider investing it.
Before you do, make sure you look into the benefits offered by a stocks and shares ISA. You can invest in bonds, shares and funds, and any income or returns are tax-free.
Just remember, you only have one ISA allowance of £15,240 for the 2016/17 tax year (rising to £20,000 in 2017/18), which you can split between a cash ISA and a stocks and shares ISA (and an innovative finance ISA once it launches).
With Click & Invest, we’re making investing as straightforward as possible, by providing an online service that’s available to everyone with £10,000 or more to invest. Find out how our products and services can help you invest in your children’s future.
It’s important you understand there are risks associated with investing. You should fully understand these risks and be willing to accept them before investing. You could loss all or part of your money as the value can go down as well as up.
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The information in this article is for private circulation and is believed to be correct but cannot be guaranteed. Opinions, interpretations and conclusions represent our judgement as of this date and are subject to change. The information contained in this article does not constitute a personal recommendation and the investment or investment services referred to may not be suitable for all investors; therefore we strongly recommend you consult your Professional Adviser before taking any action. Copyright: Investec Click & Invest Limited. Reproduction prohibited without permission.