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How to save for university costs

  • Describe the importance of saving for children's university costs
  • Identify the various means of saving
  • Describe the advantages of saving via an investment fund over a savings account
CPD
Approx.30min

Then there are the living costs. According to Which?, in their study from December 2018, the average costs when living away from home at university are as follows:

Rent – this is very difficult to calculate as it varies by region and landlord.

However Which? estimate that renting in London in private accommodation can average £533 to £770 a month (pcm), whereas in Leeds it can be £281 to £353 and in Liverpool £259 to £385.

For this exercise, let’s make a broad assumption that rent will be £400 pcm – after all most parents want a reasonable standard of accommodation for their children, in the best university town they can get.

What about other costs?

After rent, Which? calculate the following averages per month:

  • Transport - £83
  • Groceries -  £67
  • Utilities - £45
  • Interests and hobbies - £36
  • Clothing - £42
  • Holidays and flights - £70
  • Bank charges and fees - £17
  • Takeaways and snacks - £24
  • Phone and internet - £26
  • Alcohol and cigarettes - £16
  • Personal care - £10
  • Coffee and tea - £20
  • Other expenses - £20

So in total, we are talking about £876 per month. Over a 3-year course, based on being away for 8 months a year and adding in the course fees, that comes to £30,274.

There are many variables that we can throw in here, including that they may choose to live at home and go to a local university.

Smaller and more rural universities are likely to be cheaper and they may choose a two-year course, but equally they may go on to continue their studies further depending on the field they enter into.

There is other financial support available, including allowances, bursary, scholarships or an award from a university or college, however, as with all allowances and benefits, who knows what will be around in future.

What are the funding options?

Now that we know how much, what are the options for putting money aside? What on earth do people save into these days?

Interest rates are low and likely to remain so. Growth is uncertain in equities and returns can of course go down as well as up – do you want to risk the educational future of your children? So let’s weigh up the options.

Saving into a bank or building society account

In simple terms, if your clients need to raise an amount equivalent to £30,000, they will need to save £122 per month assuming a 1.5 per cent interest rate. (Not accounting for inflation, and assuming your client starts to save from the minute a child is born).

This could be achieved four years sooner by saving £168 pm.

However, if we look at what £30,000 from 18 years ago is worth today they should actually be aiming for a figure more in the region of £50,392. (Over this period, goods and services increased by 68% which an equivalent growth rate of 2.9 per cent a year)

So to take account of inflation (assuming you are talking to clients today about their new-born) to make £50,392 over an 18 year period, your clients would need to save £204 pm, which could be achieved four years sooner if they save £282pm.

CPD
Approx.30min

Please answer the six multiple choice questions below in order to bank your CPD. Multiple attempts are available until all questions are correctly answered.

  1. In England or Wales what does a student have to be earning before he or she pays off their student loans?

  2. How much are average living and educational costs for a three-year course?

  3. How much would parents have to save per month, for a child's education in 18 years times, estimated to be in the region of £50,000?

  4. What are the advantages of investing £100 consistently every month, even though unit prices fluctuate?

  5. How much would you have to pay in each month to an investment fund to achieve £43,206 over 20 years, at 5 per cent growth?

  6. What is important not to miss out on when setting up a n investment plan for educational fees?

Nearly There…

You have successfully answered all the questions correctly, well done!

You should now know…

  • Describe the importance of saving for children's university costs
  • Identify the various means of saving
  • Describe the advantages of saving via an investment fund over a savings account

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