Starting a family is exciting, but it will also mean big changes to your lifestyle and your finances. It’s natural that this will result in a lot of questions around family finance planning, or how to manage work life balance if one or both of you are climbing the career ladder. There’s a lot to consider when you and your partner (or just you) decide to take the next step in growing your family. It’s no secret that raising a family is expensive, which is why it’s always best to prepare your finances so that you’re financially ready too.
One of the biggest areas to focus your attention on is your child’s/children’s’ education, from preschool, to secondary school, all the way through to college and university.
Preschool & Nursery Fees
According to Money Helper, in the UK, the average cost of sending a child under the age of two to nursery is £138 a week part-time (25 hours) or £263 a week full-time (50 hours). If you and your partner tend to work late and you need to send your child to an after-school leisure club throughout the week, there’s an additional average cost of £62 per week. The additional fee can provide peace of mind that your child/children will be safe and entertained whilst you are at work or on the commute home.
However, at the other end of the scale, if you decided to send your child to a private nursery school, the fees would certainly increase. As an example, a private nursery school in London would cost an average of £2,400 per month for 0-2 years and £2,060 per month for 2-5 years. To get your child registered into the nursery, you would have to pay an additional set of one-off fees including a £120 registration fee, drop-in deposit of £500 and finally a permanent schedule deposit of £2,500.
Preparatory/Private School Fees
If you decide to send your child to private school and remain in the local area to avoid boarding fees, this is an option for parents and can often work out to be more cost effective than boarding school accommodation fees. Obviously, these fees can vary from school to school, with factors such as location and facilities playing a major role in how much you will be charged. However, based on the Independent Schools Council (ISC) Census 2020, on average, you can expect to pay £4,763 a term for a pupil at a day only school. These figures are the average per term across the 1,307 schools that participated in the census.
However, if you decide to send your children to a private boarding in the UK, you will need to take into account the boarding fees a school charge. The cost of a UK boarding education may initially appear high, but when you consider the quality of the teaching, the small classes, the high level of care and supervision, the accommodation and food, the academic and sports facilities, and the numerous extracurricular activities, it represents a very cost-effective package.
Fees vary widely from school to school. The 2020 Independent Schools Council (ISC) Annual Census revealed that the average boarding fees per term for pupils at ISC-member senior boarding schools was £11,609, with day fees at £6,895. ISC-member prep boarding school fees are a little less, at an average of £8,621 per term for boarders and £5,442 per term for day pupils. The average boarding fee across the prep, senior and sixth-form age groups at ISC-member schools was £11,763.
Not all families will be able to afford the costs of private education institutions, which is why financial assistance is available to pupils via scholarships and bursaries. The 2020 ISC Census revealed that 33.5% of pupils in ISC schools (179,536 pupils in total) received some sort of assistance with fees and that four out of five of those received assistance direct from the school. There are various trusts that may help with fees, but under stringent conditions and usually only in special circumstances.
Scholarships will usually be awarded at ages 11, 13 and 16, with pupils already at the school having the opportunity to sit for awards at 13 and 16. Competition is very strong, but, as long as the pupil makes satisfactory progress, a scholarship is normally held for the duration of their time at the school. Scholarships may cover up to 50% of the fees, although increasingly the level of scholarships is being reduced in favour of means-tested bursarial support and a maximum of 20% is more common.
Many schools also have bursaries, which are grants from the school to help you pay the fees. These are usually awarded after a ‘means test’ of family income and are not dependent on examination performance, although some account will be taken of academic ability. To obtain a bursary, parents will usually be asked by the school’s bursar to fill in an application form, giving details of their financial circumstances, supported by documentary evidence, including capital assets.
More than £1bn a year of financial assistance is available to parents, enabling one in three students to have their school fees reduced or even waived. While it may not be openly discussed at the school gates, how to pay the school fees has become a big problem for more middle-class households. A private education is nearly 50% more expensive than a decade ago, according to data from the Independent Schools Council (ISC). At some schools, parents who apply for means-tested support could qualify even if they have a household income of £90,000. The ISC says that £800m of the £1bn provided in “fee assistance” last year came directly from the schools themselves.
In addition to bursaries and scholarships, financial help is usually available in the event of hardship caused by redundancy, illness or bereavement. The Royal National Children’s Springboard Foundation, the largest boarding school bursary charity, pairs children from low-income homes with boarding schools. The charity pays full bursaries in the event of parental death, sibling or parent disability or abuse. In 2017, it gave financial support to 465 pupils and aims to support 1,000 by 2023.
Not a day goes by when parents are not reminded by the media of the huge cost of going to university for their children. Headlines of £50,000 of debt, to a parent can sound like a horrendous burden to be taking on at such a young age, especially since that is probably more than your first mortgage. Luckily for parents, there is Government support available to help your children through their university journey.
Tuition fee loan: this is to cover the cost of tuition fees and is available to all UK students. The amount offered varies depending on the cost of their course, but currently the majority of courses are charging the maximum of £9,250 per annum. This money will be paid directly to the university and will never hit your son/daughter’s bank account.
Maintenance loan: covering living expenses including accommodation, food, travel, entertainment, books and any other costs. It is paid directly into the student’s bank account in three instalments, once per term, and can be used as they see fit. The amount given is awarded dependent on the student’s household income. So, the Student Loan Company is deciding whether they think you can afford to supplement your child’s funds based on your household income and does not take into consideration your outgoings.
This is where the system currently falls down as most maintenance loans barely cover the cost of accommodation and students will have a shortfall – which you, as their parent will be expected to make up the difference. Nobody tells you this. It is implied. Of course, there is a choice and that is why many students now find themselves having to work part-time while they study.
Financial and Tax Planning from Grosvenor Wealth Management
Providing a good education is one of the greatest gifts parents or grandparents can bestow upon a child or their children. While the financial implications can be discouraging, it’s important to plan as early as you can to give you the financial advantage when paying for the fees. For many households, income and/or inheritance will provide the main source of funding, but you should still start to consider your financial planning when your child is born to help build up a fund over the next eighteen to twenty years, ready for when they go off to university.
Parents looking to pay school fees fall into three categories – those who want to invest a lump sum, those who would pay out of income, and parents willing to set up a regular savings scheme to provide funds to cover future fees. There are several options available to help make school fees more affordable, and they can be both tax-efficient and flexible.
Currently, depositing the money into a savings account doesn’t offer much potential for capital growth and is unlikely to be the best method for growing a school fees fund. An alternative option to cash saving accounts is to invest the money in stocks and shares. However, this presents taking on additional risk and you need to consider how much risk you wish to take with each investment. On the flip side, returns from stocks and shares regularly outperformed cash. Working out how best to invest for education fees involves determining your own attitude to risk, investment timeframe and how you wish to pay the fees. Another option is using your annual ISA allowance, which permits tax-efficient contributions of up to £20,000.
An investment in equities does not provide the security of capital associated with a deposit account with a bank or building society. The favourable tax treatment given to ISAs may not be maintained in the future, as they are subject to changes in legislation.
With a myriad of options available, seeking the right investment strategy is not easy. Doing your homework and seeking out trusted, expert advice is, as always, the key to long-term success. For those UK parents considering an outlay totalling more than £250,000 over their child’s lifetime attendance at private schools and higher education, Grosvenor Wealth Management suggest a detailed analysis by one of our Independent Financial Advisers using financial and tax planning techniques which can sometimes save up to 50% of school fee liabilities.