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.
As you can see, these figures are starting to stack up quite seriously.
Your clients may be happy with saving this amount, but many may struggle to put this aside at a time when the have got a new, young, family.
In addition, I am certain that you have come across many clients who have not yet started saving but have children who are just about to start school.
This puts an added pressure on the amount of time available to save. And, of course, the average number of children per family in the UK is 1.7. So there is a high likelihood of having clients who need to save for two children’s educational needs. So that’s over £100,000 just for university fees.
For private school fees, the pressure is really on. If you need an average of £15,000 per annum for five years, making a total of £75,000, then from birth your clients have 11 years to save £524 pm, not allowing for inflation.
Of course, they will not need it all at once, but you get the principle.
This is not a cheap exercise and simply putting money away into a savings account may not achieve what your clients need.
So let’s look at investment – this is where an adviser can really help
A long term investment is an obvious choice here and something that an experienced adviser can really help with.
First of all, you have the added advantage of pound cost averaging.
