Rachael Griffin
AUTHOR Rachael Griffin| CREATED 18 Jan 2016

Educating the kids: what it’ll cost and how to afford it

Having children is expensive. More so if you want to educate them privately. So how do you raise the cash to make sure they get the best start possible?

Raising a child in the UK these days is eye-wateringly expensive. From birth to the age of 21, they’ll cost you about £229,000, according to one recent study1. And that’s if you send them to state school; if you send them to a private day-school then you can expect to add a further £222,000 to the overall bill.

So don’t be in any doubts: you need to save as much as possible, as early as possible. And you may need to consider investing, to give yourself the chance of raising enough money for your preferred options.

Work out the overall cost – and how you can reduce it

Before you start cancelling holidays and cutting every luxury out of your life, it’s worth considering how you might reduce the total sum you have to raise.

Sending your child to a private school for part of their education rather than all of it will dramatically reduce the overall cost. Choosing a good state-funded primary school for their early education will give you longer to save before you need to start paying fees. Alternatively if you have a good state secondary school nearby you could consider just paying for private primary education.

It’s also worth bearing in mind that most private schools offer means-tested bursaries and scholarships, which can shave thousands off the cost of education. According to the Independent Schools Council, a trade body that represents 1,200 private schools across the UK, a third of private pupils receive some form of assistance like this2.

To get such help, your child will have to show they can perform academically, and they may have to pass special exams to qualify. If your son or daughter is bright, you may wish to pay for extra tuition that will help them prepare – indeed this will probably end up being cost-effective over the long term, provided they get in.

Raising the cash within five years

If you’re trying to raise money for a child who’s starting school within the next five years then you need to move fast. You’re going to need cash on hand when they start school in order to meet regular expenses, and if you’re sending them to a private school then you’ll need to factor in fees, which are normally payable in advance at the beginning of each term.

Cash savings accounts don’t carry the risk that you might get back less than you put in. However, you should shop around for the best possible interest rates, as the spending power of cash is continually eroded by inflation.

Generally speaking, you’ll give yourself the chance to earn higher returns if you’re willing to leave your money untouched for longer. So bear this in mind as you work out how much money you’ll need by when. If you know, for example, that you’ll need to pay a certain fee by a certain date then you may be better off putting that money into a deposit account that is inaccessible until the date in question, or just before. By tying your money up in this way, you will probably be able to earn a higher rate of interest than by putting it into an account that offers instant access.

What to consider if you’ve got more than five years to play with

If you’re trying to raise money for an educational expense that’s more than five years away, or if – better still – you’re raising it for a child who hasn’t been born yet, congratulations! You’ve given yourself the opportunity to raise significantly more.

Cash savings accounts will still be an important part of your plans as you move closer to your goal, but in the meantime you could consider investing, which will give you the chance (though not the guarantee) of earning significantly higher returns. You can learn more about the basics of investing and how to start making plans, here.

Investing is better suited to longer-term objectives because it inevitably involves ups and downs, and if you experience a drop in the value of your investments then it makes sense to give yourself more time to recover the losses.

UK stocks have generated average returns of 5.1% a year since 1899, after inflation has been taken into account. That doesn’t mean the stock market will behave the same way in the future, but it gives you an idea of what financial advisers factor into their thinking when they make investing recommendations.

What’s more, if you can leave your investments alone for longer and reinvest the income generated, then – just as with savings – you’ll leave more time for ‘compound interest’ to weave its magic. Compound interest is what happens when interest itself earns interest, and creates a snowball effect that can dramatically increase the value of your original capital. Income generated from UK stocks is known as dividends rather than interest but the same principle applies.

You can reduce the amount of tax payable on your investments by putting them into an Individual Savings Account (ISA). And if you wish to start saving for your child’s higher education then you could consider opening a Junior ISA, which will enable you to shelter the investments from the same taxes without using up any of your own tax allowances. Your child won’t be able to make any withdrawals from a Junior ISA until they turn 18, but that will prevent them – and you – from dipping into the funds in the meantime.

If you have a financial adviser then they can help you plan how to finance your child’s education, in line with your other needs and goals. If you don’t yet have a financial adviser but are interested in finding one then you can find out more here.

1 Source: LV
2 Source: ISC


Rachael Griffin

Financial Planning Expert Old Mutual Wealth

Rachael Griffin is Head of Technical for Old Mutual Wealth, where she provides tax and technical guidance for the development and maintenance of their financial planning solutions to the UK, expatriate and international investors. This incorporates a product and trust range which covers markets as diverse as the UK, Middle East, Far East, Latin America and South Africa. As a technical specialist with over 19 years experience in international pension, trusts and tax planning, Rachael is a frequent commentator in the trade press. She is also a member of the UK Personal Finance Society, Society of Trust and Estate Practitioners, and both the Tax and Legal & Regulatory Committees for the Association of International Life Offices.

Expert in Tax and trusts, and financial planning