Monday, 9 November 2015

Back to School: An Education for Parents too By Penny Lovell

Stressful time for parents as well as teachers and students?
Back to school: An education for parents too
As I sat sewing labels onto a plethora of my children’s belongings last weekend, I could certainly appreciate the additional stress it brings – or at least the contrast to the family’s recent summer holiday! But I also found myself thinking about the costs that come with a new academic year.  The extra pressure involved with children going back to school isn’t purely linked to extra “school admin” – preparing sports kits, sewing labels, school runs, paperwork – it is financial too.  
After possibly overspending on a family holiday (and in our case also over indulging on pasta and gelato), September is the time when parents tend to contemplate the future expenses associated with the upbringing of tomorrow’s leaders. This can include school fees for those who choose to provide a private education for their children, but there is also a host of additional annual costs to consider - music tuition, school uniforms, sports training or school trips. Without factoring these into a long-term plan these expenses can be, at best, an unwelcome surprise, and at worst, the straw that breaks the camel’s back.
For families already covering a host of other expenses – whether the mortgage, utility bills, holidays – we often find that the short term priorities override longer term goals. This can frequently mean that retirement planning is postponed, with pension saving reduced or suspended to fund school fees or the costs involved in bringing up children.
Sacrificing long-term saving and investment can prove incredibly costly. Assuming 3% inflation, £100 saved now will be worth about £30 in purchase power in 40 years. Invested it could be worth £200, net of inflation (assuming 5% gain per annum). The earlier one invests, the greater the impact of compounding. So to postpone or severely cut pension saving will have a disproportionate knock-on effect further down the line, meaning parents may have to work for years longer. 
When one has to make a choice between one’s own future and the future of one’s children, the dilemma is difficult, and it is only natural that children are prioritised. But is that dilemma a necessity? This is where financial advice has a role to play. With professional guidance early on, the potential expenses of school can be anticipated and factored into long-term savings. For instance, at Close Brothers Asset Management, we enlisted Moody’s Analytics to help us develop a mathematical model which helps make more informed decisions for the future. This accounts for a huge range of different scenarios to aid in building a robust financial plan.
Alongside taking advice, there are simple steps parents can follow to ensure they have built savings to support their children’s education without sacrificing their pensions. “Little and often” is crucial as an approach, as is taking advantage of tax-free allowances. Fully utilising a JISA allowance amounts to £340 per month at present. Without accounting for any growth this alone would provide a fund of over £73,000 by the time a child was old enough to go to university.   
As the children go back to school, it has hit home again to me the importance of education. But this is not just limited to school children. Parents can avoid short-term financial stress by boosting their understanding of long-term financial planning. 

No comments:

Post a Comment