Congratulations on your baby! An education in financial planning

Investment in education is the gift that keeps on giving. It is never too soon to factor in the cost of providing your children with the very best start in life.

Like parents-to-be who put their child’s name down for the family’s preferred school before they are even born, many are now planning for the cost of university before their babies are even on solid food.

And it isn’t just university costs; are you considering school fees and gap years?

Chartered Financial Planner Jacob Hartley stresses the importance of lifelong financial planning so you can be confident that whatever your children plan to do, the costs will be covered.

Jacob said: “At Clarion, we typically see couples wanting to fund university education for their children, as well as those who are looking at private schooling.

“It sets a firm target for us to work towards. As soon as your child is born, we can start to factor in the cost of school fees at age 11 – or before – and university at 18.

According to the Independent Schools Council, 2019 Census and Annual Report, average fees from age 11-18 are in excess of £100,000 per child and significantly more if they are to board.

Jacob said: “Clarion has clients who are paying up to £45,000 per year in school fees for each child. They also place great value on experiences outside formal education, so we have also factored in financing a gap year prior to at least three years at university.”

University students already face tuition fees of up to £9,250 a year and other expenditure of around £800 a month.

With most courses lasting a minimum of three years, parents often find themselves funding education at a point when they would otherwise be looking at retirement themselves. Spare a thought for those whose children decide they want to be doctors (five-year course), vets (five years) or architects (seven years)!

Accommodation accounts for a large chunk of costs associated with university. In days gone by, some parents have explored the idea of buying a property for their children to live in during their second and third years, as opposed to paying extortionate rent.

However, Jacob said: “We would not typically advise our clients to purchase student property for the short time their children attend university. Property has become less attractive as an investment over the last few years with the increased cost of stamp duty, the lack of tax relief available on mortgage interest, and the potential capital gains taxes payable on disposal. In addition, the associated costs of buying, maintaining, and selling the property eat into the investment returns generated from the rental income and capital gain.”

The significant costs associated with education require a focused financial plan – and sometimes the need to call on extended family for financial assistance.

“Grandparents may be in a position to utilise their annual gift allowances of £3,000 each or £6,000 per couple. While helping grandchildren with the costs associated with education, these gifts may also prove to be efficient as part of their own inheritance tax mitigation strategy,” explained Jacob. “Trusts may also be used as a means of funding grandchildren’s education, whilst also mitigating taxes payable on death.”

At Clarion, we do not just focus on the financial planning requirements of our clients, but we also help to guide and educate them on matters such as student finance for their children. Whilst it doesn’t make sense to saddle young adults with huge amounts of debt, teaching them financial responsibility from an early age is very important.

Jacob added: “When discussing education costs with clients, we often suggest not planning to pay for university tuition fees. Their children will have more of a stake in their own education if they are ultimately responsible for paying for it themselves, and it will hopefully instil greater discipline.

“It gives the students the motivation to work hard and become successful, with tuition loans becoming a form of taxation on their future earnings at a low rate once certain thresholds are exceeded. For students in England and Wales that graduated after 1^st September 2012, student loans are repaid at a rate of 9% on earnings above £27,295. For an individual earning £50,000, the effective rate of repayment is equivalent to 4.09% per annum, which is relatively low when considering the current rates of income tax.

“However, should clients wish for their children to go through university without incurring any student debt, having a robust lifelong financial plan in place enables us to show our clients that they can afford the university costs without jeopardising their own future financial security. In cases like these, we encourage our clients to repay the debt after graduation, to ensure a high level of discipline remains. This will also avoid their children incurring interest on the outstanding debt, as measured by the Retail Price Index plus up to 3%.”

The sooner you start investing, the better. We are here to make the cost of education less of a burden via smart lifelong financial planning. Clarion Wealth Planning are Chartered Financial Planners, specialising in true, lifelong financial planning and investment management. We develop, implement, and monitor bespoke long-term plans for successful individuals and their families. Above all, we give our clients the certainty that they can enjoy life to the full now as well as long into the future because they have clarity and confidence about their future wealth.

Experience true lifelong financial planning at our cost: email [email protected] to book a free initial consultation meeting, which is backed by our Clarion Guarantee. Following the production of your lifelong financial plan, you can walk away with no fees to pay in the unlikely event that you do not value our advice or services.

The value of an investment and the income from it can go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.

The content of this article does not constitute financial advice and you may wish to seek professional advice based on your individual circumstances before making any financial decisions.

Tax planning and trusts are not regulated by the Financial Conduct Authority.