“Two Porsche 911 Cabriolets, 23 round-the-world cruises, 2,425 dinners at Claridges: to think what might have been if you hadn’t gone all doe-eyed over the babygrows in Mothercare,” says Ruth Banks in MSN Money. With the average child costing £194,000 – or £9,227 a year from birth to the age of 21, according to insurer LV – children cost serious money.
Even scarier, these figures don’t include independent schooling – still many parents’ preferred option. And that’s despite the cost – the average preparatory-school boarding fee in 2006 was £13,000, while some public schools now charge over £9,000 per term for boarders. Private school fees have risen by twice the rate of inflation over the last five years, says Halifax Financial Services. So with four children in private education, don’t expect much change out of £1.5m, says Barclays Wealth. And there’s no tax relief – you pay school fees out of post-tax income. So just how does anyone save enough?
Starting early helps, says Chris Proctor of school fees specialist SFIA: “most people paying school fees are cash-strapped. They’re often funding a mortgage and school fees, which takes up a big proportion of their disposable income. So try to pay the early-year fees from means other than income.” Fine, but with the stockmarket slides hitting share portfolios, and plunging interest rates hammering savings-account returns, that’s not easy. However, thanks to their charitable status, schools earn interest tax-free on their deposits, meaning the discount for paying fees up front is often bigger than the interest you would earn on a taxed savings account.
“There’s a growing interest in paying fees upfront, and netting a higher effective return than available on cash deposits,” says The Sunday Times’s Jennifer Hill. A typical discount would be around 3%, equivalent to 5% if you pay higher-rate tax. The further in advance you pay, the greater the discount, with about 5% typical if you pay five years or more ahead – in effect a saving of 8.33% for a higher-rate taxpayer. Fees increased by an average of 6.2% in 2007-2008, according to the Independent Schools Council. “To get this ‘return’ with a cash savings account, higher-rate taxpayers would have to achieve pre-tax interest at 10.3%.” However, in these recessionary times, there’s more risk of schools failing. So double-check that your money is segregated, says Nick Marten of the Independent Schools’ Bursars Association.
Alternatively, if your offspring are bright enough, investigate bursaries and scholarships. Some schools will pay 100% of the fees for very gifted children, and at least 15% for the less able if circumstances merit. Check out www.isc.co.uk for details.