New parents worried about their children being lumbered with huge university debts could prevent it by investing £175 a month over 18 years.
On Tuesday thousands of students will get their A-level results, and record numbers are awaiting confirmation of a university place. Those who make it will face university costs of about £56,000 after a rise in tuition fees to £9,250 per year. Living costs outside London are estimated at up to £28,000 for a three-year course.
Putting £175 into a tax-free Junior Isa each month could generate enough to cover these costs by the time a newborn reaches 18, according to analysis by Fidelity International, the investment company. This assumes a steady 5 per cent growth rate in a managed fund charging 0.75 per cent a year.
A monthly saving of £100 could generate £32,000 — more than three years of tuition fees, while £50 a month could generate £16,000. You can boost returns by lowering charges, for example by opting for low-cost tracker funds that simply aim to replicate the holdings of a market index, using algorithms, and remove the need for costly management fees. A FTSE 100 tracker fund from Vanguard costs 0.06 per cent a year.
Further savings can be had by picking a cheap investment platform. Fidelity does not charge a platform fee for Junior Isas. AJ Bell, another investment platform, charges up to 0.25 per cent. Hargreaves Lansdown charges up to 0.45 per cent.
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It is always better to invest in shares over longer periods due to the paltry rates on cash which are unlikely to overcome the corrosive effects of inflation over time.
The rate of inflation has soared this year. The Consumer Prices Index measure was 2.5 per cent in the 12 months to June 2021, up from 2.1 per cent in the year to May. It was 0.2 per cent in August last year after the first Covid lockdown.
Emma-Lou Montgomery at Fidelity International said: “Planning your child’s financial future may not be the most immediate priority when you have just become a parent, however it could be one of the most beneficial things you do. Whether they end up going to university, starting a business or travelling, knowing that they have a nest egg with which to achieve their dreams will give you peace of mind.”
Student rents are up 18%
Living costs for students have increased by almost a fifth in the past 12 months (David Brenchley writes). The average monthly rent paid by university students in 2021 was £518, up 18 per cent from last year, the latest NatWest Student Living Index found.
London continued to be the most expensive at £619.90, although rents fell by just over £100 a month. London remains the only city in the UK where students’ outgoings are higher than their income.
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Leicester registered the biggest yearly increase, with rents rising more than £118 to about £460.
Andy Nicholson, the head of NatWest student accounts, said that the increase in rent would put even more pressure on student finances.
Most students’ income still comes from their student loans, but this was less important to their finances in 2021. Contributions from parents and personal savings are playing a more prominent role in financing student lives. The NatWest survey in June found that one in seven students now rely on their own income, down from one in five in 2020. This reflects the fact that more students lived at home last year, the bank said.
A quarter of students said that they ran out of cash every month and one in five said that they saved no money at all. An average of £33 a month was spent on eating out.
Heading off to university this year? Times Money Mentor has a checklist