Investing for the next generation
“A good start in life” is what all parents want for their young children. Initially this often translates into a surplus of toys but, give or take technology fads, this stage eventually passes. At that point thoughts turn towards the future and the transition from child to adulthood.
The longer-term perspective raises the possibility of making investments for your children which they can call on in adult life. This can lead to a variety of issues:
- are there particular needs which should be targeted or is flexibility more important?
- which investments would be appropriate?
- can some parental or other controls over when children can have access to the investment be put in place?
- which are the most tax efficient?
Save for what?
For today’s children, the path through the early years of adulthood looks rather different from, and more expensive than, that of parents and grandparents: Higher education may be seen to be more important for getting that dream job but it also comes at a much higher cost. Taking into account tuition fees, accommodation and living expenses, a three year degree is likely to cost students between £35,000 to £40,000. Before 1998, there were only grants. Loans for tuition fees did not begin until 2006.
You may have left university with a bank overdraft, but the sum owing probably pales into insignificance compared to the five figure debts many of the coming generations of graduates face.
Marriage can be costly for those who choose it. According to the consumer website Money Saving Expert, the average wedding costs around £20,000. One third of couples questioned admitted going into debt to pay for their wedding.
Getting on the first rung of the property ladder is another growing cost for the next generation. The typical first- time buyer borrows over 3.39 times their income with a deposit of 17% and we’ve all heard of the Bank of Mum and Dad. Once they have the degree, the job and the home (and the mountain of debt), there’s another long-term financing requirement which today’s children will encounter: retirement provision. The final salary pension scheme, which has benefitted today’s retirees, has virtually disappeared for new private sector employees.
Take expert advice
Two principles that apply to many aspects of financial planning are particularly relevant when thinking about children:
- The sooner you start the better, and the more scope there is for investments to grow (although there’s still no guarantee that they will).
- Take expert advice before making any decisions. The right investment set up in the wrong way can be worse than the wrong investment set up in the right way.
The value of your investments and any income from them can fall as well as rise and you may not get back the original amount invested.
If you want to help your child progress through this financial landscape, please get in touch.
