The Importance of saving for your child’s future
11/08/2014
According to figures released earlier this year, it now costs over £225,000 to raise a child to the age of 21 years. That’s a staggering amount don’t you think?
Here at financialadvice.co.uk towers, where some of us are parents to one or more children, we were blown away by this amount. The study, which was conducted by the Centre of Economic and Business Research (CEBR), advised that these latest figures have increased by an astonishing 62% since the last survey, which was carried out back in 2003.
On average parents spend nearly a third of their household income on their children covering expenses such as food, hobbies, clothing, education and childcare. The biggest chunk, £73,803, is spent on education, closely followed by childcare, costing £66,113.
One in five who took part in the survey admitted that they were actually considering not having another child due to the costs involved in raising a family.
Still amazed? Well, we’ve just about recovered from finding out how much it costs to raise a child, however, it was pointed out that if you add up all the rewards you get by being a parent, the final total doesn’t seem that much.
So, what’s next?
Most parents are concerned about their child’s future and quite often they speak to us, normally at great length, about how they can financially support their children in the future.
• How do I start saving for my children?
• Saving accounts for children, which is the best one?
• Is it really important to save for my children?
These are just some of the many questions we receive.
Why should I save for my child’s future?
Saving for a rainy day isn’t just about you; it’s also about your children and putting something away for them in the future. Parents start saving for their children because they perceive it as a gift, a helping hand for their future. There are many reasons behind why parents start saving and some of these include:
• Wanting to buy their first car
• Supporting them with the costs of a university education
• Helping them get onto the property ladder with a deposit for their first home
• Contributing financially to a big event such as a wedding
On average parents save £42.45 a month for each child, according to L&G Investments.
Is saving for your child a new thing though? Did your parents save or put any money aside for you when you were growing up?
Reading through the abundance of articles, which can be found on the internet, there are many arguments out there debating the benefits of saving for your children. The majority are by families who are ‘pro saving’ and they actively encourage you to start putting money away as soon as possible. They also highly recommend getting your children involved too. They say it is a great way of making them money savvy and financially responsible.
What options do you have when it comes to saving for your children?
Well, the truth is there are plenty for you to choose from, but here are the main ones that we think you should take note of.
1. Child savings account
You can open a savings account for your child at either a bank or a building society with as little as £1. The majority of accounts are interest free and when your child reaches the age of seven years old they can start managing the account themselves.
2. Junior cash or stocks and shares ISA
Junior ISAs were introduced in November 2011 and they replaced the Child Trust Fund (CTF). They work just like an adult ISA but their annual allowances are much lower. For the 2014/2015 tax-year you can save up to £4,000 tax-efficiently, so if your child is born after 3rd January 2011 or is aged under 18 years old but born before September 2002, then you can open a Junior ISA.
3. NS&I Children’s bonds
NS&I is an abbreviation for ‘National Savings and Investments’, one of the UK’s largest savings organisations. Set up in 1861, it now looks after over 25 million customers and more than £100 billion worth of invested funds. The bonds do pretty much what they say on the tin but they also offer a little hidden extra. On a monthly basis they pay out over half a million pounds in prizes ranging from £25 to £1 million. They can be purchased by parents, grandparents or even great grandparents, and the bond is held by the parent until the child reaches 16 years old. Bonds start from £25 with the maximum amount you can invest being £3000, and they have a wonderful tax-free status!
4. Friendly Societies tax-exempt plans
Friendly Societies have been around for centuries but very few people have heard about them. However over the past decade, since the beginning of the last economic crisis they have increased in popularity. Friendly Societies invest money on behalf of their members; they do not have shareholders and all the profits they raise go directly back into the society for the benefit of its members.
Saving plans with Friendly Societies are usually long term plans lasting between 10 and 25 years. The maximum amount that can be paid in is £270 a year, or £300 a year if you pay in £25 per month. You don’t pay capital gains tax on the interest that you earn.
Case Study: Paul, father of one boy aged 5 years
Saving for my son had never entered my head until a friend of mine told me that he had started saving for his little girl. My parents were never in the best financial position to save for me or my brothers and sisters, so I guess this is why the thought had never crossed my mind.
I started looking into it and I was amazed at the range of accounts available specifically aimed at children. To be honest I was a little overwhelmed by it all and that’s when I stumbled across financialadvice.co.uk.
They were great! I spoke to one of their helpful advisers, who talked me through a variety of child saving options and ideas; we also discussed the benefits and reasons behind why I would like to start saving for my son’s future. My main aim is be in the position where I can help my son onto the property ladder, as it’s such a struggle for so many first time buyers at the moment. By putting a little bit away each month I feel like I’m really helping with my little boy’s future.
Need financial advice?
If you have any personal finance questions related to this news article, then please contact our financial advisers. You can get in touch by asking a question online, calling us on 0800 092 1245, or by arranging a visit.
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