If you are considering paying for your children to go to private school and university, it’s important you start planning your finances as soon as possible to take into account the rising costs.
According to the 2012 Independent Schools Council Survey, school fees alone could cost an average of £13,788 a year while students starting at university this autumn could graduate with debts of more than £53,000*, possibly rising to £60,000** if they follow you into dentistry.
These figures make it clear that if you do have children and intend to pay for their education, the sooner you start planning your finances, the better.
If you are unable to pay education costs from your regular income, then you may decide to turn to any assets or investment portfolios you have. Review them to see if they will cover the predicted costs, and decide whether you need to make additional contributions or seek new investment opportunities.
With investments, it is important to consider their maturity date to make sure you have access to the funds at the times you need to pay school fees.
There are a number of options that will allow your savings to grow while allowing you to access them when you need to pay fees.
One option is an Individual Savings Account (ISA). These allow your savings to grow free of capital gains and income tax, while providing easy access. However, there are limits to how much you can save into them each year. Currently this is £11,280, with the full allowance able to be invested into a stocks and shares ISA, or up to half into a cash ISA, with the remainder in stocks and shares. A cash ISA is best if you will need to access the money in the short term, while stocks and shares ISAs are designed for medium- to long-term savings.
If two parents used their full stocks and shares ISA allowance over 10 years, assuming ISA allowances increase in line with CPI inflation of 2%, and if the underlying investment grew by 5% each year, it is estimated they could build up a nest egg of almost £260,000 that could be used towards school and university fees.
If you have the capital available, you may decide to invest a lump sum of money. Invested in the right way, future fees could be covered from the returns.
For regular, longer term savings, there is the option of direct investment in unit trusts. This can be a tax-efficient option because investors can use their annual capital gains tax exempt amount, which allows them to receive a certain amount of returns each year before they have to pay tax. For 2012-13, this means they can make gains of up to £10,600 free of Capital Gains Tax.
Putting your children through private education and university could be one of the biggest financial commitments you will make. Making sure you have savings and investments in place to help with the expenditure is important, but it may also be worthwhile exploring whether schools have any bursaries, grants or scholarships available to help with the cost. These details should be available from the schools themselves or the local education authority.
With education fees being such a large and long-term financial commitment, it is best to take professional advice from a financial consultant to ensure your financial commitments match your personal circumstances.
* Push.co.uk Student Debt Survey
** British Dental Association Student Futures Report 2012.
The above information does not constitute financial advice. For further information please speak to your financial adviser.
Wesleyan Medical Sickness specialises in financial services and products for dentists. For more information call 0800 316 4637 or visit www.wesleyan.co.uk/dentists.