When you find out you are expecting a baby there is so much to do! Firstly, your number one wish is for the health of the new addition to the family, but then you want to get everything ready for when they arrive. One thing that might skip your mind however, is the idea that you could start saving right away to help fund the child’s university education.
Due to the increasing tuition fees at university, more and more people are advising on starting to save money as soon as you hear the good news.
A familiar story
Ms Lowers, and her husband, Percy Wright, who works in public relations for the Royal Navy, began putting £130 a month into their “baby fund” as the moment they got the good news about the pregnancy.
“I was incredibly lucky when I was a child that I had music lessons for two instruments, tennis lessons and lots of other educational activities and trips. It’s only now that you start adding up the cost of these things and realise that, for multiple children, that can come to hundreds of pounds a month. We want to ensure that we have money to give our children these opportunities.”
Research by Barclays bank found that more than half of those surveyed believe it is best to start saving for children when they are less than 12 months old. However, most respondents find themselves waylaid by other costs and fail to do so.
How to save for your child’s future
There are two main things parents can do to give their children financial security in their adult lives.
Invest for them
Many parents are saving cash in Junior Isas, an account that cannot be accessed until a child turns 18. However, cash is often not the best place for long-term savings. Putting savings for younger children into a stocks and shares Junior Isa, where it can be invested and grow, would be a better choice for many.
“Why anyone would want to open a cash Junior Isa for their child is a bit of a mystery. Children, like adults, enjoy tax allowances and need not pay tax on savings interest,” says Jason Hollands, the managing director of Tilney Group, an adviser.
In this tax year you can put £4,128 into a Junior Isa. Since 2016 individuals have had a personal savings allowance, which allows you £1,000 interest from your savings tax-free.
A child would have £567,258 in their pension pot if £300 a month was invested from birth to age 18
Tuition fees and pensions
“Cash is not a suitable place to park assets for the long-term because the real value will be steadily eroded by the acid of inflation. This is especially the case in the current environment of record-low interest rates and inflation of above 2 per cent,” Mr Hollands says.
When it comes to stocks and shares Junior Isas, he recommends selecting a global fund rather than focusing on the UK, as many investors tend to do. He highlights the Scottish Mortgage investment trust or the Lindsell Train Global Equity fund for those wanting an actively managed approach. A cheaper option would be the Fidelity Index World passive fund.
It seems that most people are completely unaware that you can start to invest in your child’s pension from the day that they are born. And with the future of pensions increasingly changing, it would be a wise decision to begin to set aside funds for them. However, most people will find just saving for a child’s education tricky enough due to the high cost of living in most parts of the world. Ultimately, any money you can set aside for your children’s future is an advantage, but you should be sure to carefully research the best way to store the money for maximum returns.