There was a time when hearing a child’s dreams for the future filled a parent with joy. But these days you’d be forgiven for hoping little Robert will want to be a lorry driver, rather than doctor, given the cost of education.
According to the Children’s Mutual, parents of children just starting primary school could face university bills of between £75,000 and £130,000 in just 12 years time should their children decide they want to be teachers, doctors or vets.
Why you may not need to pay at all
If your children are already approaching university age, hopefully you’ve already got some money set aside. Living costs at present are around £9,500 a year, according to the National Union of Students; and then there are tuition fees, which can be up to £3,145 per year. But if you are worried you haven’t saved enough, don’t panic. If you will be really pushed to pay then it’s worth checking with the university whether any bursaries or grants are available. But if you don’t qualify, then remember that for students, debt isn’t a dirty word.
You may not like the idea of your child graduating in debt, but fortunately a student loan is the cheapest form of debt out there. Interest paid on new student loans is based on the Retail Price Index rate of inflation. To find out more about the loans that are available, visit the Student Loan website.
If your child has decided they want to be a doctor and you are worrying about funding six years of further education, bear in mind how much they’ll earn once they qualify. Many medical students put themselves through university by racking up astonishing levels of debt – it costs around £100,000 at the moment – safe in the knowledge that once they qualify and land a job, they’ll be able to clear the debt quite quickly.
Further education isn’t always worth the bother
Also consider whether it’s worth you lavishing tens of thousands of pounds on your child’s education. Thanks to Labour’s thoroughly blinkered approach, almost half of school leavers now go on to university regardless of their career goals. But before you fund that media studies course or Creative Leadership and Management degree – I’m not making that last one up – consider whether it is going to improve your child’s chances of getting a job.
If your child dreams of being an estate agent, or a plumber for example, how is an irrelevant degree course going to help them? After four years at university I arrived at MoneyWeek to discover a colleague who had worked her way up through the journalism ranks rather than going to university, and was in a much better financial position than myself. So don’t automatically assume that university is the best option. Your child may be better off in the long run just heading out into the working world, or getting an apprenticeship.
Start saving early
If your child is still young, then it’s time to start saving – regularly. If they decide not to go to university then you’ve lost nothing after all. “If you have 18 years to save then ideally you should be putting away £180 a month (to give a £60,000 fund),” says Emma Simon in The Daily Telegraph. That should be enough to cover a standard degree course – although if your child is already bandaging their favourite soft toys or nagging for a Fisher Price stethoscope, you may want to try and set aside more.
Some good places to put the money
There are a number of options for saving all this money safely protected from Gordon Brown’s tax-grabbing hands. The first, and most publicised, is the Child Trust Fund (CTF). Parents can put up to £100 a month into a CTF and it then generates returns entirely tax free. The best cash CTF on the market at the moment is with Hanley Economic Building Society who are offering 5% AER. For a list of the other top four most competitive cash CTF’s available, visit MoneyFacts. But bear in mind that the money belongs to your child and they will get access to it on their 18th birthday whether they decide to go to university or not.
If you would rather keep control of the money yourself, then consider a children’s savings account. These are just like a normal savings account except that they are opened in your child’s name. As long as the child is under 16 when you open one, an adult has to be a signatory on the account, which means you can withdraw and manage the account for them. The attraction of children’s savings accounts is that at present they are offering very competitive interest rates – the best at present is 6% from Halifax.
The money in these accounts is also safe from tax up to a certain point, as children get a personal allowance just like adults of £6,475 before they have to start paying income tax. Just make sure you fill out a R85 tax form when you open the account and your child will receive interest tax-free. Be aware that the amount of interest they earn cannot exceed £100 a year per parent. If it does then, “you will be taxed on it as if it were your own,” warns Alison Hunt on Lovemoney.com.
Don’t forget about pension contributions
Another option is to increase your pension contributions. If you are going to be over 55 when your child starts further education, consider that you can withdraw 25% of your pension pot as a tax-free lump sum when you hit 55. “So, although a pension’s main purpose is to fund old age, it can be used to fund education – provided you pay enough into your fund in the first place for it to support both objectives,” says Simon.
Finally you could just forget all this and start regaling your children with stories of derring-do in the plumbing world. You’ll save yourself a fortune and they’ll still earn enough to keep you in the manner to which you are accustomed into your dotage.
• This article is taken from our weekly MoneyWeek Saver email.
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