How to help your children financially: financial futures
With private education costs at an all-time high and fees having more than trebled since 1990, many parents will breathe a sigh of relief once their kids hit 18. However, this is probably a little bit premature.
As an average 91 per cent of private school pupils go on to university, the buck doesn't actually stop there.
Higher education is an extra financial burden which parents must budget for, even those who have saved money earlier on by opting for state school.
So - what are the funding options you should be considering, and what are the best ways to help your child financially while encouraging them to be independent?
HAVE THEY CONSIDERED A GAP YEAR?
Over the last decade it has become increasingly common for children to take a gap year before further study. While this might not seem like the most obvious way to help with university finances, it can actually be very helpful.
Of course, worldwide travel is expensive and will dent your wallet considerably if you offer to foot the bill. But, with the right approach, a gap year can be a great opportunity for your child to become financially independent before embarking on their university career.
If they are keen on the prospect of taking a year out, make it clear that they will have to work for their new freedom. Encourage them to get a job for the majority of the year in order to fund the travel later on.
This will teach them about the value of money as they realise the correlation between saving and reward, and they might even have a little extra to put away as a buffer to help with their university finances.
SAVE ON THE INTEREST AND PAY IT OFF
It could be an idea - if you're in a good financial position yourselves – to pay the fees up front, as you will save on student loan interest later down the line.
These rates aren't as favourable as they once were - since 2012, this interest has been calculated at 3 per cent above the current rate and starts being charged while students are still at university.
But never get a loan yourself to save your child the debt! While student loans aren't such good value as they used to be, you will be hard-pressed to borrow at a better rate.
If you do choose to pay fees up front and also help your children with their day-to-day living costs, it is important to make it clear that they have to budget with this money and make it last the full term.
Just because it is coming from the 'Bank of Mum and Dad' does not mean that they should treat it like an endless stream of cash.
Structure your payments as if they were coming from the Student Loans Company, with one instalment coming in per term, and make sure they know how to budget to meet their needs right up until the end of each term.
GET ON THE STUDENT PROPERTY LADDER
A significant expense at university is accommodation. While first year students will often stay in halls, once they hit their second year they will more than likely be looking to rent privately with friends.
If you have available capital then investing in a buy-to-let property can not only save you and your child rental costs (generally between £60 and £100 per week outside London) but become a promising investment for you.
This will allow your child the opportunity to act as a 'live-in landlord' whilst saving them a significant financial burden. It's a very buoyant market, which you will be able to tap into with the help of your child, so you shouldn't have a problem recouping on the mortgage (and more!) from the other student tenants.
Sarah Lord is managing director of Killik Chartered Financial Planners.