Will You Be Paying for Your Child Past 21?

2017-12-05


The Problem

We understand how important it is for parents to save for their children’s future. In fact, the average cost of raising one child from birth to age 21 has increased by 63% since 2003, to an unnerving £230,000[1], partly due to childcare and education costs, despite cutbacks in toys and food. With a quarter of 18 to 29 year-old Britons still living at home with their parents[2], costs up to the age of 21 are not the only ones to worry about, highlighting the importance of building a nest egg to give them a helping hand. “Family dynamics are evolving,” claims personal wealth and retirement head at Merrill Lynch, David Tyrie. “Adults are living longer, people are retiring later, and millennials are making life choices vastly different than their parents did.”[3] Given the tough economy that children are growing up to inevitably face, chances are, you may be paying for your children well into their adulthood.


The Reaction

One of the more popular options for building up a pot for your children’s future is a Junior ISA, which come in the form of cash or stocks and shares. Cash ISAs offer high levels of security[4] but in exchange come with low growth rates. They are relatively simple to manage but once money is put into the ISA, it is locked away until your child turns 18, giving you no access or control over those funds once you sign off. Junior ISAs are a good option for low risk and preserving your current capital. However, whilst you may not be losing money, inflation poses a risk to purchasing power, meaning you can buy less with the same amount[5].

Investing in stocks and shares mean you are taking a portion of a company, and if that company share price performs well, so does your investment. The risk is higher, and you can expect losses in the lead up to long-term gains[6], even during the best investment periods.


The Solution?

Investing in something tangible like precious metals and property, which have ‘intrinsic value,’ could arguably help you take advantage during times of inflation. As prices increase, the sale value of property also increases. Between 1995 and 2013 prices increased by 220%[7]. Cash can lose its purchasing power, and cash-based savings accounts can prove to be pointless if the interest rate does not catch up to the rate of inflation.

Of course, what parents may have in investment funds they lack in time, so managing a property can prove to be difficult on top of managing a small human being. Homegrown offers the opportunity to invest in property without the hassle of being a landlord, so you can make money in your sleep if the return is positive.

Of course, like investing in stocks and shares, there is risk to your capital. Also, property as an asset suffers from illiquidity. As mentioned beforehand, Cash ISAs are untouchable until the age of 18, at which point your child takes over. Investment terms at Homegrown run at 18-36 months.

With time on your side, you can use compound interest to your benefit, by constantly reinvesting across a diversified portfolio of investments. If you invest £10,000 into an asset with a 5% annual return, you can make a £500 surplus in your first year. By reinvesting over a decade, that value becomes £16,230.

Statistics show that British parents put aside £550 annually for their children[8]. Investments at Homegrown start at just £500. If you want to find out more, you can sign up for updates or contact one of the team at info@homegrown.co.uk.

As with any investment, as well as potential benefits, there can be risks too. Make sure you fully understand your investment before entering an agreement and seek financial advice if needed.


Sources:

  1. Telegraph / Average cost of raising a child in the UK
  2. Telegraph / Why people in their 20s won't move out of home
  3. Time / Parents adult children financial support
  4. Money Saving Expert / Junior ISA
  5. The Balance / Focus on purchasing power not dollars
  6. Betterment / Expect short term losses for long term gains
  7. Nationwide / House Price Calculator
  8. This is Money / Less parents save regularly children money tight

Your capital is at risk if you invest in property. This includes illiquidity (the inability to sell assets quickly or without substantial loss in value), and the loss of invested capital if the wider property market or an individual property suffers a reduction in value. Investments on Homegrown are not covered by the Financial Services Compensation Scheme. Past performance and forecasts are not indicative of future performance. For more information see our full risk warning. Homegrown Group Limited is authorised and regulated by the Financial Conduct Authority (FRN: 694952). Investments through Homegrown are equity investments.
Future performance is not guaranteed and is based on projections only. Your capital is at risk if you invest in property. For more information see our full risk warning.