In the early years this may involve a surplus of toys, days out and nursing but these stages eventually pass and thoughts turn toward the future transition from child to adult and beyond. This longer-term perspective raises several questions of how best to provide financial support throughout what could be an expensive transition and inevitably can lead to a variety of issues:
- Are there particular needs which should be targeted or is it more important to have money available as and when your child needs it?
- If investing is appropriate, where should we put the money?
- Is it possible to put some parental or other controls in place for when children can access an investment?
- Which are the most tax-efficient investments?
For today’s children, the pathway through the early years of adulthood might cost rather more than that of their previous generations. Higher education may be seen to be more important for building a strong platform to a reasonable career but it also comes at a much higher cost. Taking into account tuition fees, accommodation and living expenses, a three-year degree is likely to cost around £50,000 according to a recent Institute of Fiscal Studies report. Before 1998, there were only grants and loans as tuition fees did not begin until 2006. Previous generations may have left university with a bank overdraft (if any debt at all) but the sum owing probably pales into insignificance compared to the debts faced by today’s graduates.
Marriage and property purchase considerations
Marriage is an increasingly costly staging post for those who choose it. According to the annual wedding survey by Bridebook.co.uk the average cost of a wedding in 2018 was just over £30,000. Despite the cost, two thirds of couples questioned in the survey admitted to either going over budget or having no budget at all.
High on the priority list is getting onto the property ladder. Again, there is at an ever growing cost with the gap between earnings and property prices becoming ever wider. It is therefore no surprise people are generally not in a position to buy their own property now until much later in their lives.
Once they have the degree, the job and the home (and the mountain of debt), there’s another long-term financing requirement which today’s children may encounter…..retirement provision.
Two principles that apply to many aspects of financial planning are particularly relevant when thinking about children:
- The sooner you start, the better. The longer your investment horizon, the more scope you have for investment risk and capital growth (although there are still no guarantees that they will grow).
- Take expert advice before making any decisions. The right investment set up in the wrong way can be worse than the wrong investment set up in the right way. DIY planning is not to be recommended, given the potential pitfalls.
If you require advice to help you and your family to progress through this financial landscape, please get in touch