Life can throw any number of hurdles at you. And as a parent, or guardian, your first thought will almost always be about your children. Studies show that parents are already spending an average of £14,916[1] a year on their little ones. Finding a way to help them cover extra costs as they start to fly the nest can seem like a daunting task. This is especially true today with the rising cost of higher education and property. So, what can you start doing now to make the financial road ahead a little easier? Here at Wealthify, we have a simple and low-cost solution for exactly these situations. A Junior Stocks and Shares ISA can be set up at any time during childhood and will provide your kids with a tax-efficient investment pot for later in life.
Students now face debts of over £50,000
Universities in the UK are now among the most expensive in the world. Students are paying around £9,188 per year for their education in “tuition fees” alone. If your child wants to become a dentist, they will need to attend university for at least five years[2]. This costs around £45,940. And this is before a further five years of lower-paid training on the job. It’s a similar story if you were hoping to have a doctor in the family, which also takes five years of study. Adding to this is the cost of simply living. Students have long been associated with being light on funds, and it is easy to see why. The student loan covers some living costs, but certainly not all. Students living outside London receive a yearly maximum of £8,944[3], depending on their parents’ income. This works out at £725 per month. But according to one recent survey, the average student will spend closer to £807 a month[4]. All in all, it can paint a somewhat bleak picture for today’s undergraduates. For example, if your child wants to become a dentist, they could expect a student debt of £90,660 to achieve their dreams.
Beginning a career with a debt of £89,750 is enough to make parents' stomachs sink. Especially with an interest rate of 5.4%[5] whilst you’re still studying.
If you feel out of your depth with your children taking on this level of debt to secure a career, you are not alone[6]. The spiraling costs of education has left many people feeling anxious.
First home ownership is also less achievable for today’s young people
It’s official, buying a first home is much harder for young people nowadays than it was for the generations before. Across the UK, owning a home is becoming more and more expensive. For example, the average house prices in England have risen by a staggering 173% since 1997, compared with a measly rise of just 19% in the salaries of young adults[7]. This has led to nearly one million more adults choosing to live at home with mum and dad over the past twenty years[8]. Owning a home is a rite of passage for many people who may look to settle down or start a family. Today 40% of young people face the prospect that they will be renting for life[7]. More and more young people are turning to their parents for support and loans to get a foot on the property ladder[9].
As a parent, you want to be prepared for these grisly moments. By getting ahead of the game and starting early, you can give your kids a stress-free helping hand.
So what can you, as parents or guardians, do?
If you’re already considering how you can support your kids later, then time is on your side. In the world of investing, the amount of time you have is often just as important as the amount of money you have. Starting early could help your money grow.
For example, £5,000 in a savings account today is worth less than £50 a month invested for ten years (which is around £7,052[10]). Imagine your little one is looking to own a home in 20 years' time. Investing £50 a month now means that they could expect to have £17,281 when that time comes [11]. This is because long-term investing could make a meaningful difference to your returns. Say your five year old wants to buy a property when they turn 35. If you’ve been investing, it could make a serious dent on the down-payments, and get them started on the right foot.
Support your child with a Junior Stocks and Shares ISA
Here at Wealthify, we understand that the costs can be staggering for many young people and parents. So, we have created a tried-and-tested approach to building up wealth for your child. Paying into a Junior ISA is a simple but effective way to begin investing early. This allows your children to enjoy more financial freedom as they enter adulthood.
With a Junior Stocks and Shares ISA, your child gets tax relief on their investment returns. This applies to investments of up to £4,368 each year (subject to change). By saving money on taxes, your child gets to keep more of their returns throughout the years. Even better, the money is locked away until your child reaches the age of 18,. This will give it more time to potentially grow.
With Wealthify, little ones have an expert team managing their plan and their money is invested in a number of funds. In one Junior Stocks and Shares ISA, there are more than 15,000 investments, and each investment is cherry-picked for its potential. Every day the team check the market for the best opportunities. They also adjust (or "rebalance") as often as needed, to help ensure that the investment plans are on track. All you need to do is choose how much to invest and the risk level that suits your needs. We have made our calculations with a "Confident" level of risk. This is around 50% of stocks and shares, with around 50% of bonds and cash.
You can invest as little as you wish, and you can also select an ethical investment option, which will help the planet at the same time as investing towards your child’s future.
Once your child hits 18 years old, they can access their Junior Stocks and Shares ISA and their account will automatically become an adult Stocks and Shares ISA. They can choose whether to continue it after this time. After this, they can get tax relief on a much larger amount of money. Currently, this amount is £20,000 (subject to change).
Getting started with a Junior Stocks and Shares ISA couldn't be simpler. You will need to be the parent or guardian of your child to set it up. Follow the instructions online. And within 15 minutes, your child could be well on the way to a brighter financial future.
The tax treatment depends on your individual circumstances and maybe subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.
[1] https://www.yourmoney.com/household-bills/parents-spend-half-their-salary-on-their-children/
[2]: https://www.independent.co.uk/news/education/university-tuition-fees-england-highest-world-compare-students-student-loan-calculator-a7654276.html
[3] https://www.gov.uk/student-finance/new-fulltime-students
[4] https://www.savethestudent.org/money/student-budgeting/what-do-students-spend-their-money-on.html
[5] https://www.gov.uk/repaying-your-student-loan/what-you-pay
[6] https://unihealth.uk.com/stress-of-student-debt/
[7] https://www.ifs.org.uk/publications/13471
[8] https://www.theguardian.com/society/2019/feb/08/million-more-young-adults-live-parents-uk-housing
[9] https://www.independent.co.uk/life-style/parents-property-loans-children-money-buy-property-mortgage-a8960806.html
[10] This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £5,686. If markets perform better, your return could be £8,422. Values correct as of 20/01/20.
[11] This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £13,192. If markets perform better, your return could be £22,687. Values correct as of 20/01/20.
