We all want the best for our children, and the truth is that they can be costly. The Child Poverty Action Group reports that it costs on average £74,436 for a couple (excluding childcare and housing), £102,637 for a single-parent household, to raise a child to the age of 18, so it is not for the faint-hearted.
From the start of their life there is a lot to consider and during those hectic first few weeks, saving for their future, changing or setting up your Will and making sure you have adequate life insurance are not the first things that come to mind. But there is a real benefit to taking the time to think about what plans are essential for safeguarding your child’s future to give them financial security and options.
Our Chartered Financial Planners are trained to walk clients through the thought process and help them make the best choices. And we would always advise that it pays to start saving for your children as early as possible. If possible, it is even better if you can do this while when you are in the process of thinking about wanting to have children.
While saving is important, it is certainly not the only thing you need to consider. It is crucial that you get other aspects such as wills and life insurance right to make sure you are protected for whatever life may bring you.
Often, due to the generosity of others, your children are given money as gifts for important events such as religious ceremonies, Christmas, and birthdays. These gifts are frequently put into a cash savings account for them to access when they are older. By putting money into one of these accounts, it can limit the growth of because of the rate of inflation over the 18 or so years until the child can access the money. It is often overlooked that Junior ISAs (JISAs) can invest in stocks and shares, which may be a better option over a longer time, depending on your attitude to risk and objectives. This does come with an increased risk, but the potential for higher returns. Meaning your children have access to more financial options when they are older.
It is always good to start saving for their future sooner rather than later. Ideally, it would help if you thought about how you are going to pay for their future when they are babies. For example, if you are considering private education best-schools.co.uk reports that day prep fees can range from £10,000 to £20,000 or more in London and day fees for senior schools can range from £12,000 to £25,000 per annum. The average boarding fees are around £35,000 p.a. but some boarding schools are now exceeding £45,000 per annum. This is a dip in the ocean compared to when they get old enough to need help with cars, university fees and a deposit on a home, demanding much more of your finances. Using a JISA and saving £100 per month for 18 years, for example, could fund a deposit on a house, as you can see in the example below.
Savings at the end (age 63): £27,957
The graph shows savings at £100per month (increasing with inflation at 2.5%) with investment returns of 4.5% per annum *after all fees and charges.
Another way to make the most of your money is to do your research. Find out if you are eligible for tax-free child care, or other benefits from the government by following this link: https://www.gov.uk/benefits-calculators
It is vital that you either set up or update your Will upon the arrival of a child. This will mean that your wishes will be reflected if you should, unfortunately, die. If, for example, something was to happen to yourself and your spouse and you do not specify who you want to be the guardian of your child, a court will decide; obviously, you are in a better position to determine this. With a Will, you get to outline who will take care of your child and what they (and others) will inherit. If your child is young, you can set up a trust which they will inherit at either 18, 21 or 25 years old. A Will ensures that your wishes will be followed after your death, giving you peace of mind that if something were to happen, you have decided the fate of your child, money, and assets.
Finally, it is essential that you have a good life insurance policy. Things to consider are, would your mortgage be repaid? Does your policy cover the salary that would be lost? How long will the money last?
A good life insurance policy gives you more flexibility. Not only would you be worse off financially due to the loss of an income, but emotionally it would be hard to cope with the loss of a spouse. It would affect all areas of your life. Therefore, having a policy that would pay off your mortgage and give you a big enough lump sum to cover the lost salary, would mean you might have the freedom to take some time off work to grieve. It could also help you to continue living the same lifestyle you are accustomed to, for example, by paying for childcare.
If you need some advice on life insurance, Donna at LIFT-Life would be happy to talk to you about your wants and needs. You can email her at firstname.lastname@example.org.
The value of investments may go down as well as up.
The FCA do not regulate will writing, tax planning and trusts.