This month’s article is the third and final part in our series that offers advice on how to financially plan to fund your children’s university education. We’ve already covered what the real costs will be and how you can start to work out what monies you have to invest, the next step is to decide on an investment strategy.
To be able to decide on an investment strategy that suits you, you’ll need to know the timescales that you need to work to, your own attitude to investment risk, whether you are investing a lump sum and/or regular amounts and how important it is to you that the objective be met.
If your timescales are:
Saving for less than five years: You would be well advised to stick to deposit accounts that have no risk to capital and to try and squeeze the best possible rate of interest (providing you are within the FSCS limits of £85k per person per FSA registered institution you are protected if the Bank or Building Society defaults). You may have to accept that inflation could erode the real value of your money a little.
Saving for between five and ten years: In this situation it will depend on your attitude to investment risk as to whether a deposit account approach or a more adventurous approach (or somewhere in between) is appropriate. There are also some investments that have the potential for inflation matched returns but that offer some form of capital guarantee.
Saving for ten years or more: Investments such as ‘stocks and shares’ and property (‘real assets’)have the potential to provide above inflation returns over longer periods of time. When investing in ‘real assets’ spreading the risk is the key. Diversification across different types of assets and geographic regions is proven to reduce the overall level of investment risk within a portfolio.
Once you’re happy with your overall investment strategy, there are numerous different products that may be suitable for you and that will meet your objectives. From straightforward deposit accounts to Unit Trusts/OEICs, ISAs, Investment Trusts, Investment Bonds and ‘Structured Products’ – there’s a very long list!
Deciding which of these products will be the most suitable for your requirements depends very much on the type of underlying assets you want to invest into, costs and charges, tax considerations, any specific risks associated with a particular product and the level of investor protection offered by each product.
To find out what would suit you and your situation, just give me a call on 01332 345370.
If you have more than one child, particularly if they are likely to attend university at the same time or if your children may want to continue study and undertake a post-graduate course or second degree, then the figures become even more daunting.
There are some instances where you and your children may have access to funding streams that will lessen the cost of the university experience, however, all these types of additional monies are subject to Government policy and so therefore cannot be relied upon to be in place at the exact time you need a boost in your bank balance.
In 2012 and under current Government policy there are several possible income streams, if you meet the appropriate government-dictated criteria:
- Tuition fee loansfor the full amount of the fees incurred are available to every student. Your child would start repaying the loan once they started earning £21,000 p.a. (at 9% of income p.a. over £21k), and they could repay the loans early without penalty, should they have a windfall.
The interest rate on these loans is inflation +3% whilst studying (which is currently equal to around 6% interest) and after the student has finished university the interest varies between inflation and inflation +3% p.a., depending on earnings. At 6% p.a. interest the amount of the debt would DOUBLE every 12 years if not repaid and therefore could be a very expensive way of funding the university experience for your child. Tuition fee loans are written off after 30 years.
- Maintenance loansare available to help towards accommodation and living costs. The maximum available if your child is studying away from home is £5,500 p.a. outside London (£7.675 in London) – although if you have a homebody, they can still apply for up to £4,375 p.a.
- Maintenance grantsare available to households on lower incomes. If household income is less than £42,600 p.a., a grant of between £50 and £3,250 could be available.
For a particularly talented student, you may be able to access scholarships or bursaries and there are several sources of financial support for those students with disabilities and those with dependents.
If you find you’re not eligible, or unwilling to access any of these schemes, then you’ll need to make sure there’s enough in your own money box to ensure you’re not taken into debt in the name of education.
To find where to start in funding your children’s education, check out our top tips for proactive parents next month.