UK news: Managing the cost of your children's future

Education is one of the most important investments you can make.

“An investment in knowledge always pays the best in interest” – so said Benjamin Franklin. And there’s little doubt that most parents will do what they can to secure their children’s future.

In the UK – judging by the significant commitment required to send children through 14 years of primary and secondary education – it is clearly beneficial to understand how you can minimise the considerable cost of providing your next generation with an independent education.

According to the Independent Schools Council (ISC), parents across the UK currently send c. 520,000 children to ISC member schools – a current record. But even at their most basic, private school fees are an annually mounting cost that tells only half the story. Day school costs can potentially double if you opt for boarding too – not counting the extra expense of more than a decade’s-worth of long-haul field trips, textbooks and uniforms.

How much do you need?

Parents will typically pay fees as they progress from year to year. A GBP 30,000 annual outlay can therefore lead to a total outlay of GBP 420,000 over the school life of one child.

How much do you really need?

Current inflation may be at relatively low levels, but history tells us that school fees inflation rarely tracks the CPI and in fact, the cost of living extremely well may be a better indicator for future cost rises. A 14-year period will need to reflect likely annual increases on top of the figure above. A 6.5 per cent scenario will add another GBP 275,000, taking your final total to GBP 695,000.

Lessen the impact by investing ahead

By most standards, this sort of financial commitment is significant. Add, too, the siblings into the equation and the case for some sort of investment becomes inescapable. But having established the future cost, it is possible to calculate what sum you would need to invest now by adjusting the total fee figure by an assumed rate of growth.

Typically 3 years’ costs will be set aside (assumed to benefit from a net return of 0.5 per cent) with the remaining funds benefiting from an assumed 3 per cent annual net return. By making these assumptions we arrive at the following.

 

To find out more about now HSBC Private Bank can help you best prepare for the financing of your children’s education, we suggest that you contact your adviser today.

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