£70k university costs serve as a reminder to save early for a degree06 August 2014
Thousands of students will discover whether they have secured a place at their chosen university when A-level results for England and Wales are revealed on 14th August. Degree costs have escalated in recent years, with the National Union of Students estimating that the average expenditure in 2012/13 comprising fees and living costs for a degree in London was £23,521 and £22,189 for the rest of England, meaning the cost of a three year course may exceed £70,000.* Without a pool of savings to offset these costs, graduates could find themselves taking years to eliminate their debts, incurring interest costs in the process at a time when they may be looking to purchase a property or start a family.
Jason Hollands, Managing Director at private client investment and financial planning group Tilney Bestinvest said: “The significant expansion of higher education means the UK is awash with graduates, many of whom will leave higher education with significant debt and will enter a competitive jobs market. It may surprise some that according to statistics from the Department for Business Innovation & Skills, the benefit of a degree is on average worth £200k in earnings over a whole lifetime compared to those of a non-graduate.** In financial terms at least, the case for an “average degree” may not be as compelling as many assume when you consider the associated costs.”
“The key to cracking the costs of financing a future university degree is to start as early as possible. Based on an assumption of achieving a return of 5%, net of charges, each year you would need to invest £203 a month for 18 years to generate approximately £70,000. However, add in an inflation assumption of, say 2% (the Bank of England target), and the required sum is more like £246 per month for 18 years.
“To illustrate the impact of delaying however, if you only start accumulating a savings pot 10 years ahead of the date that the funds are required (when the child is eight) then the annual sum to be saved will need to be around £502 per month per (based on the above return and inflation assumptions). There is of course a good deal of uncertainty in these assumptions, as inflation (particularly in education costs) could be much higher, equally as investments may go down or up you may find markets deliver higher or lower returns than the 5% assumption we have used.
Junior ISAs – A good first port of call
“Your first port of call for building a savings pot could well be a Junior ISA; the Government’s flagship savings scheme for children, launched three years ago. The recent Budget increased the amount parents and guardians can invest in a JISA to £4,000 – that’s a tidy sum but if you are starting to save relatively late in the day, it may not be sufficient in itself and you may need to consider additional savings plans.
“Investing into a JISA can be done either through regular monthly savings or through lump sum investments into an account that can hold cash or stocks and shares (or funds investing in stocks and shares). All returns accumulate free of tax on gains and Income Tax as the value of the Junior ISA builds over time. Although you can’t access the money before the child reaches age 18, at that point full ownership of the account passes to them, enabling them to either withdraw funds or continue with the investments as an adult New ISA.”
“While cash is an eligible investment in a Junior ISA, we think this will be the wrong place to park money for the long term. This is because its real value will slowly be eroded by inflation over time and, of course, savings rates are currently very low.”
Funds suitable for a Junior ISA
Hollands continued: “For those starting early, it makes sense to focus on having a larger exposure to equities as part of a diversified portfolio, which while volatile over the short-term, have greater long-term prospects than cash or bonds. There is a natural tendency to look close to home and invest in the UK stock market, but the world is your oyster, so parents might consider a combination of global developed market and emerging market funds such as Aberdeen World Equity or Lazard Emerging Markets. Alternatively, globally diversified investment trusts have long been popular choices for long-term savings schemes and can offer investors a one-stop shop. Choices here include RIT Capital Partners, Scottish Mortgage IT and Foreign & Colonial Investment Trust.”
“For those with shorter time horizons, a wholly equity focused approach carries too much risk and uncertainty, so more cautious strategies might be considered. Multi-asset funds such as the Artemis Strategic Assets and the Trojan fund or targeted absolute return funds such as Standard Life Global Absolute Return Strategies offer a less volatile approach but with more modest return prospects.”
“While Junior ISAs are a useful tool in the armoury, they are by no means the only way of saving to fund future university costs. In particular some parents may be deeply uncomfortable about giving their children access to a big pot of assets from their Junior ISA when they reach 18 feeling they are not yet ready to take responsibility for such a sum and may squander it. Parents wanting to exercise more control may therefore choose to set up a trust or use their own New ISA allowance instead. The new ISA allowance is a hefty £15,000 for the 2014/15 tax year, as announced in the Budget, withdrawing funds as cash as and when required.”
Tilney Bestinvest offers a Junior ISA through its Online Investment Service which provides access to a choice of more than 2,500 funds, as well as investment trusts, ETFs and stocks and shares with a minimum investment of £100 lump sum or £50 per month. For more information visit bestinvest.co.uk/juniorisa
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This article is not advice to invest, or to use any of our services. The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. Prevailing tax rates and reliefs are dependent on your individual circumstances and are subject to change. Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.
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About Tilney Bestinvest
Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.
We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.
We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.
Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.
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For further information, please visit: www.tilneybestinvest.co.uk
Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years. Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.
We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.
Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.