Most of us would love to be in a position to help our kids with their university fees, so they don’t face a mountain of debt when they start their adult lives. But with degree-level tuition currently costing thousands per year, few parents can simply raid their savings to cover the costs.
The amount a student is expected to pay for their tuition can vary depending on their circumstances and where they live in the UK. Scottish students studying at home currently pay nothing, while those in Wales and England are expected to contribute to their tuition, although grants can be available for Welsh students. Loans and grants for living expenses can also be available, so it’s always worth checking.
Students expected to pay the full tuition fee each year could face debts of around £28,000 after a typical 3-year undergraduate degree, before you count any maintenance loans.
Those who started their studies after Autumn 2017 will also face annual interest of 6.1% accruing on their debt, adding as much as £5,8001 to the balance during their studies alone.
The good news is that if you have young children, time and the power of compound returns are on your side. If you’re willing to take an element of risk, adding a relatively small sum each month to a global stock market investment plan could give you a surprisingly helpful savings pot to hand your child as they’re packing to leave home.
These days, you don’t need lots of money to start investing, and if you’re not sure what you’re doing, there are low-cost services that will build you a portfolio and manage it for you every day, meaning anyone can become an investor, with minimal effort.
Using a service like Wealthify, starting with a £100 investment in a medium-risk (Confident) Plan and adding £100 per month could get you around £28,000 in 15 years’ time, enough to make a big difference.
For comparison, putting the same amount aside into a cash savings account at current average2 easy access savings rates, would take you around 22 years to reach a similar goal. Of course, it’s important to hold a cash reserve for unforeseen costs, but it may not be the most effective way to save for long-term large expenses.
Those with older kids can still save too, although you might need to put more aside each month to make up for lost time.
If your kids are around 5 years old now, the same initial £100 investment would need to be followed by regular monthly payments of around £120 to potentially achieve £28,000 in 13 years’ time, and those with 10-year-olds would need to put £230 aside per month. If you’re willing to take a bit more risk, you could opt for a higher-risk (Adventurous) plan to boost your potential returns. Then, the original £100 deposit and monthly £100 contributions could achieve your £28,000 goal in as little as 14 years.
You don’t have to cover the whole tuition fee, of course. Any help you can give your children towards their university or college fees will no-doubt be warmly welcomed and, most importantly, should reduce their level of debt when they graduate, giving them an important financial leg-up as they embark on the next exciting chapter of their lives.
Predicted values are based on an investor making a £100 initial deposit into a medium-risk (Confident) or higher-risk (Adventurous) Wealthify ISA plan, and subsequent monthly payments as indicated for the specified durations. Predicted values are calculated using ARC benchmark data which comprises data on the past performance of hundreds of comparable private investment plans. Past performance is not a reliable indicator of future returns. With investing your capital is at risk and you may get back less than you put in.
1 Source: BBC News 15/8/2017: http://www.bbc.co.uk/news/education-40936283
2 Current average easy-access cash savings rate 0.38%. Source: Moneyfacts https://moneyfacts.co.uk/news/savings/fixed-savings-rates-increase-further/
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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.