How to save for your child’s future education

Even now I get that little fizz in my gut when I think about exam results day. I can vividly remember walking into my school reception for the last time on a sunny August afternoon in Essex with no real idea of how I’d performed.

I’d gone on from five years of school onto two years of sixth form – and those last two were a mixed bag.

Year 12 saw me essentially fritter away time – poor exam results, a lack of care and way cooler things to do.

A shake-up in the summer between year 12 to 13 after some poor AS results made me grow-up and knuckle down, especially with my dream clearer: I wanted to be a journalist, God help me, with no contacts or clue how to achieve it.

I was much encouraged by an Victorian-esque English teacher who, despite being a frightening lady, saw some sort of talent in me – even though I hated her at the time, I often look back and realise she was a key influence in shaking out my teenage angst.

She was a rare gem in the dark pit of a below-par secondary school.

My results were good, my growing up and hard work had paid-off, and I was off to university. I also look back now at a lack of guidance from anyone remotely adult at school about how to get into the career I wanted. 

I simply picked six universities, was accepted into all of them, and went to one, clueless as to whether it would set me on my path to a job where I could write for a living.

If I knew what I knew now, I’d possibly take a different route – experience at a local newspaper plus a shorter journalism course may have been the better option, but all careers differ and hindsight is always wonderful. However, there is no degree in that.

Today sees many students with that same fizz of anticipation and anxiousness as they open their results. Many of them will be heading onto university and their fresh adult world cut open like a watermelon to devour and enjoy. It’s exciting.

One thing that has changed since my university days is the cost. When I went in 2005, tuition fees were capped at £1,200 per year and mine were even partially paid for as I lived with my single mum.

The accommodation was expensive as I was in South West London and I graduated with a five-figure sum I paid off earlier this year. I feel extremely lucky.

Official statistics suggest the average student starting now will graduate with £45,800 of debt, including student loans. This is an incomprehensible sum for a young adult to digest, even the very brightest ones.

Many suggest thinking of it as a future tax on your earnings, rather than a debt boulder tied around a young adult’s neck.

Meanwhile, a new student loan system hits in September 2023 with a 40-year repayment period, rather than 30, and a lower repayment threshold.

Debt is a major consideration for students planning to go to university, but also a major factor in the decision of some students not to go, research suggests.

Two-fifths of students with no plans to go to university identified not wanting to get into debt as one of the reasons, while 36 per cent said tuition fees were too high, according to Association of Investment Companies research.

Those are damning statistics. It’s sad to think potential bright youngsters in this country may not enter higher education which could benefit them and enhance job prospects in a career they want because of debt fears. 

Simply put, it’s a disgrace that before many young adults start university, they are worried about money. 

Investing for the future

One potential way to help soften the blow is saving for your child or grandchild’s future – if you can. 

When my daughter was born at the end of 2018, one of the very first things I did was to sit down (with her asleep on my shoulder) and jot down a rough plan for her financial security that I could help build almost from day one, with rising higher education costs (and property prices) on my mind.

I can remember those early hours in the lounge as vividly as my A Levels results day. 

How much my now wife and I could tuck away each month, realistically, to help her when she became an adult while tapping numbers into a compounding calculator.

Subsequently, we opened a stocks and shares Isa with £1,000, some of which was our own cash, some of which was newborn and Christmas gifts for our daughter, and committed to £75 a month each.

Instead of months of dallying, I just opened the account.  

Today, not quite four years into that investment via Vanguard and its LifeStrategy 100 Equity Fund, the £1,000 original pot has just snowballed past £10,000 with a 44.06 per cent return. Nearly £2,000 of that pot is already accumulated interest.

It’s turning into a substantial sum that can be put towards higher education (if that’s the path she chooses), a home deposit (when she’s ready) and other expenses, such as driving lessons.

A little safety net I will keep a secret, so as to not influence her own young adult decisions.

I know not everyone can stretch to that kind of sum, especially with the cost-of-living crisis biting. But as I always say, there is no size fits all. Some people can potentially save more, while you might have more than one child and you want to keep it fair between them all.

One thing I will add though is investing has become so much easier in the last decade, even with small amounts.

If you can get four people to save £12.50 per month (say two parents, and two grandparents) and forfeit needless rubbish that gets gifted to kids, you can start building a fairly substantial investment pot over time.

Indeed, the AIC survey shows only a minority of parents realise they can make small, regular investments in the stock market, with just a quarter identifying the minimum amount that can be invested as either £25 or £50 per month and two in five having no idea.

A monthly investment of £50 in the average investment company, for example, would have grown into £29,509 over the past 18 years, according to the AIC research.

Encouragingly, 83 per cent of parents have made savings or investments towards their children’s future. Cash savings accounts are the most popular way to save, with 57 per cent of all parents using them.

But with 10.1 per cent annual inflation, that is currently being eaten away. 

Nick Britton from the AIC says: ‘While it’s understandable that cash savings are a popular way for parents to put some money aside for their children’s future, today’s high inflation and low interest rates mean that the real value of those cash piles is being whittled away at an alarming rate.

‘Meanwhile, those with younger children have time on their side, which puts them in a good position to take advantage of the higher potential returns available from investing in the stock market over the long-term.’

Experts usually say a minimum investing horizon of five years, but 10 years is best. If you start from day one, 18 years is an incredibly long and productive time to drip-feed invest.  

If you know someone receiving their results today, good luck – and I wish them the very best in their adult life. 

Additionally, results aren’t everything: while not everyone is academic, there are always little things you can do (in my opinion) to get ahead in life. Be kind, treat people well, educate yourself on things you care about, learn about finance, learn from your mistakes, soak in knowledge from those around you, always network and above all, have the right attitude.