Educational Value – Add This To The Divorce Parenting Plan
When divorcing, sometimes the children’s educational futures are not taken into account – especially if the children are still very young. But by discussing long-term plans for the children’s education early on in the divorce process, the financial implications could well impact on how a couple decide to split their assets.
A good education can be invaluable, but it may also require significant investment – and long-term planning.
In 2016, the average cost to parents of getting a child from birth to the age of 21 came in at £231,843, according to a study compiled by the Centre for Economics and Business Research in London.1
Although the total includes £74,430 for education, this covers no more than associated costs such as travelling to school, text books, uniform and school lunches. Once parents start considering private school fees, the financial equation changes rapidly.
Sending a child to a private day school now costs, on average, £141,863 according to the Centre for Economics and Business Research – almost two thirds the cost of the average UK home.2 The total for boarding school is £260,927, even more than the average house. Inevitably, these headline figures mask significant regional differences.
Moreover, private school costs have been rising at a rapid rate, far outpacing wage growth and inflation. Private school education now costs more than double what it cost in the year 2000.3While a portion of boarding school fees can represent cost transfers (e.g. food and sports clubs) or even cost savings (e.g. school runs and childcare), a quick comparison with the average cost of bringing up a child shows how much extra it is costing parents who choose to invest in this way.
Battle for the classroom
Yet it hasn’t put parents off. In fact, despite the rate at which costs are increasing, there is a record number of children at private schools, according to the Independent Schools Council (ISC).4 Almost 523,000 pupils currently attend 1,301 ISC schools, the highest level since records began in 1974. In short, although costs are spiralling, more and more parents are sending their children to UK private schools.
How, then, is it possible to turn an expensive aspiration into a reality?“Providing a good education can be one of the most valuable gifts parents or grandparents give to children,” says Andrew Humphries, Private Client Director at St. James’s Place. “While the financial implications can be daunting, the key to affording school fees is to plan as early as you can. For many, inheritance or income will provide the main source of funding, but saving soon after a child is born can help to build a fund over ten years, ready for when they go to senior school.”
Putting the money into a savings account doesn’t offer much potential for capital growth and is unlikely to be the best solution for building a fund for school fees – all the more so when the Bank of England rate is 0.25% and inflation is 2.9%.5 An alternative route to cash is investing the money in stocks and shares. Yet that means taking on additional risk and therefore requires investors to adopt a longer time horizon. Historically, however, returns from stocks and shares have outperformed cash.
Working out how best to invest for school fees involves determining your own attitude to risk, your investment timeframe and the way in which you plan to pay for them.
“Generally, parents looking to fund 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,” says Humphries. “There are several options available to help make school fees more affordable – and they can be both tax-efficient and flexible.”
One such option is using your annual ISA allowance, which permits tax-efficient contributions of up to £20,000. But 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.
“It’s important to keep the children in mind when planning your financial future – especially when going through a divorce. With careful planning, the children’s education doesn’t have to suffer.”
The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and the value may fall as well as rise. You may get back less than the amount invested.
The favourable tax treatment given to ISAs may not be maintained in the future, as they are subject to changes in legislation.
Rowland Financial Planning represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website at www.sjp.co.uk/products.