Having a child is costly enough, but setting up a child with enough money to accommodate ever-increasing obstacles is another matter altogether. Data from Legal & General in its ‘Value of a Parent’ report this year set the cost of raising a child from birth to the age of 18 at £154,440, but this ‘day to day’ figure does not include university education, weddings or a deposit on a first home – expenditures that many parents take on for their child.
One of the biggest advantages of saving for a child is that it gives a long time frame for investments to grow. While parents do not want to take big risks with money for children, there are two decades in which to grow an investment. In most cases, the objective to investing for a child is to increase the value of an investment instead of trying to generate income through dividends or interest payments.
New needs
Although it is impossible to know what sort of economic climate the children of today will find when they reach adulthood, there are various costs that many parents wish to be able to help their child with. The purchase of a first home, for example, is something worth saving for in any conditions, but it is increasingly a burden that parents take on in the knowledge that amassing the required funds for a deposit is impossible for all but the best-paid young professionals.
There is no indication that university tuition fees will decrease, and judging by the changes over the past 15 years, as shown in the timeline overleaf, the only way is up. This creates a whole new arena for parents to bear in mind when saving for their children’s education, with fees currently standing at £9,000 at most universities. Parents now have to anticipate university study in a way they did not before, taking into account the fact their child will either begin working life with enormous debt, or aim to alleviate the burden via saving through childhood.
Beyond CTFs
Previously, saving for children was supported and encouraged with child trust funds (CTFs). A CTF was a long-term, tax-free savings account with an additional incentive of an initial government payment to encourage uptake. Brought in under the Labour government in 2005, children born between 1 September 2002 and 2 January 2011 benefited, but the vehicles have now been abolished. Eligible children were given a voucher from the government to the value of £250, which reduced to £50 if they were born after 2 August 2010.
