Through Structured Savings
The cost of attending university in the UK has risen exponentially in the last decade. Ten years ago, the average cost was c£3k, compared to now it’s close to £45k! That’s a 15-fold increase. As parents it is natural to want the best for your children. How can you contribute whilst ensuring your own finances don’t suffer?
This article does not constitute advice.
Professional advice should be taken prior to acting on any part of it.
Rising costs for university education
As if the costs of university education hadn’t risen enough over the past decade, there is also predictions that costs will rise even further in the future.
Most universities in the UK now charge £9k per year for tuition fees, totalling £27k for a typical 3-year degree course.
On top of that a student has accommodation and living costs to cover.
The Sutton Trust, Degrees and Debts Report reports that the average a student owes on graduation, is £44,500.
How much do you need to save?
At Dental & Medical Financial Services we frequently help parents to realise their plans to help their children through university.
Some parents plan to cover all costs, where-as others are interested to contribute, but for their child or children to also contribute some too, through part-time jobs or by paying back a small student loan.
This table shows the amount you would need to save from your child’s birth to age 21 to cover both the full average cost of university, rounded up to £45k. It also shows a comparible two thirds as an illustration, so £30k.
This table also shows the amount you would need to save monthly, should you delay savings until your child starts primary school, secondary school, or college.
Earn interest income on top
By saving each and every month from your child’s birth, ensures you can meet your financial objectives and not be caught having to “catch-up” nearer the time.
A structured monthly payment of £119 from the birth of your child for 21 years meets a final contribution of £30k.
If you save for just 5 years from when your child starts college, until they turn 21, the monthly payment goes up to £500, which could be inevitably harder to meet.
It is also worth remembering that saving over the long-term gives you compound interest so in fact you won’t have to save the full £30k or £45k, as interest will be a earned along the way to escalate the savings pot faster.
The sooner these contributions into a savings vehicle start, the more interest can be earned.
Also, having longer to plan means that the right choices can be made for how and where to invest to get the maximum return.
Where is best to invest savings for university costs?
ISA’s are a great, solid way to save for university costs as the interest earned is free from income tax and capital gains tax.
There are annual restrictions on how much can be invested, tax-free. This year it is £15,240.
It’s another reason to start saving early so each year savings can be kept under the tax threshold, especially relevant if you have more than one child.
There are many options when it comes to financial planning though, and it isn’t a case of one size fits all.
A thorough review of your own financial investments, assets and debts is also important, to see if money can be better utilised. Also, there could be an element of Inheritance Tax planning to factor.