Summer 2010
As you read this the emergency budget will have taken place and the new coalition government will have given us more detail as to how they are going to solve the national debt issue. I hope the tax measures introduced are not too painfully.
More than ever people will need to seek advice and I would encourage you to do this if you have any questions or issues.
One area that was changed early was the Child Trust Fund with government payments to these stopping from August1, 2010. You may remember that Child Trust Funds were set up to encourage parents to save for their children’s future and as an incentive the government paid £250 on the child’s birth and then for the fortunate few to receive it the government paid another £250 on their seventh birthday. These will now be stopping.
Industry reaction has been mixed with some saying it was a luxury and parents should save for themselves and others arguing that some parents need this help.
Whatever your thoughts on Child Trust Funds, it is clear that if you want to support your children later in life it will be expensive and you need to plan. University costs are reckoned to be £10,000 each year, including living costs, and this will go up if tuition fees increase. Weddings are becoming more lavish and £15,000 - £20,000 can disappear very quickly. As for trying to give your children a deposit for a house, £15,000 won’t go too far these days. And these amounts are what it costs today. With inflation over the next 15 – 20 years they will go up.
The key as always is planning. The vast majority of people will not be able to afford to save to provide for university costs, wedding and house deposit; so what is your priority? What would you most like to do? Start to set some money away towards it. To work out exactly how much you need to save each month search for a savings calculator online or email me and I will work it out for you.
But what do you save it in? If you have a Child Trust Fund already for your child it will remain in place until they are 18 and you can continue to contribute up to £100 per month to it. This will continue to receive tax free growth.
There are other tax free investments for children still available and providers include Family Investments and Childrens Mutual. They offer accounts similar to Child Trust Funds which allow you to invest up to £100 per month until your child’s 18th birthday. You can invest from as little as £10 per month and grandparents can also invest in them for your child.
The downsides to these types of investment include a limited fund choice to invest in and for many the fact that your child receives the money at age 18. I am not sure I would have been wise and mature enough at 18 to receive a lump sum and spend it sensibly!
Another option is to invest the money in an ISA in your name and gift this to your child when it is needed or you feel that they can deal with it sensibly. Investing in an ISA with some of the ‘platforms’ such as Fidelity FundsNetwork, Skandia or Co-funds will give you more investment choice however the minimum amount you can invest is generally £50 per month. The maximum will be your ISA limit for that year.
With these types of investment you need to ensure that the fund you choose is appropriate to the risk you want to take with the money. Different funds will provide different levels of risk so choose wisely.
Some parents may feel that they want to save into a bank account for their child and so contribute a regular amount that will stay in cash. Often this account is in your child’s name and it may be the child benefit that is paid in each month. What is important here is keeping an eye on interest rates and ensuring that you are getting a good rate. If necessary move the account to another provider to obtain a better rate. You should also remember that on any money invested by the parents, once the annual interest exceeds £100 it is taxed on the parent. This rule does not apply to the money invested by grandparents.
It is definitely clear that children are expensive! If you want to provide them with some money in the future it is essential that you plan and start saving as soon as possible.
Jason Holmes is a certified financial planner and owns Lumen Financial Planning, a local fee based financial planning firm.He can be contacted on 028 9044 7102 or Jason@lumenfinancialplanning.com