In the first of a series of articles we take a look at how the financial requirements of your children and grandchildren have changed dramatically over the past few years.
Apart from simply identifying the problem, as part of this series we will give some helpful hints and tips to help you and your children in these changing times.
First things first, what has changed?
Three news stories over the past couple of weeks have illustrated just how much things have changed for parents and children.
In the space of a few short days the Telegraph reported that the average age of a first time buyer was to rise to 44, Exeter University planned to charge students the maximum £9,000 per year in tuition fees, and there was widespread condemnation of Northern Rock for offering 90% mortgages.
It would seem that the days of A Levels, a grant to go to University for three years of work and fun, a graduate training course and a 95% first time buyer mortgage, all by the age of 23 are long gone.
Times have changed considerably.
How big could the bill be?
The costs can seriously mount up, let’s start with tuition fees. We all know that they will be between £6,000 and £9,000 per year, so currently for an average three year course that’s a total of between £18,000 and £27,000, add in say £6,000 per year for the cost of living, rent, food etc then the total rises to between £36,000 and £45,000.
That’s the possible bill today, but let’s not forget inflation. If we assume inflation runs at 3% over the next 10 years, that total cost could rise to between £46,830 and £60,476, if you have just started a family, the cost in 18 years time would be significantly higher.
There is of course no guarantee that inflation will be 3%, it could be higher or lower, indeed tuition fees may not rise in line with inflation, however if they do the numbers are rather scary.
Of course that’s just the cost of one child, we all know the average family has 2.4 children, we’ll let you do the maths on the total cost for your family.
That’s University dealt with, what about that house?
First time buyers used to get all sorts of help, special mortgages for graduates, 95% loans with a 5% deposit paid scheme, and guarantor mortgages to name a few. However, as we have mentioned already once or twice, times have changed, these sorts of schemes have all but disappeared. Lenders are now looking for larger deposits, generally at least 10% of the purchase price, furthermore applicants need stable employment with a good credit score.
The average house price on the UK last month was £162,657 (Source: Halifax House Price Index, February 2011), this means a deposit in the region of £16,000 would be needed by a first time buyer.
Of course no one knows where house prices will go over the next few years and lenders may loosen their lending criteria, however, saving that all important deposit will not be easy with the costs of University to repay.
Children could pay for themselves, either through student loans which will be repaid, subject to certain rules, when they find a job after University. Children could also work during their time at University, to minimise the loans that they need to take or indeed try and build up some savings for life after University. But how practical is finding employment when unemployment is closing in on 3 million people?
Many parents, and indeed more and more grandparents want to help their children out; the thought of them leaving University with thousands of pounds of debt to repay is horrifying to many parents.
But, how do you meet the cost?
Our experience shows us that children fall into one of three groups depending on how close they are to going to University.
The first group contains children who are planning to go to University in the very short term; it is arguable that this group is the hardest hit. The introduction and increase in tuition fees has come in the space of a few short years and the changes in the housing market happened almost overnight, leaving parents with very little time to save to meet these costs. We are seeing parents working longer hours to earn extra cash which they use to help their children or indeed some are using investments that they had earmarked for their own retirement to help out.
The second group of children are significantly younger, probably not even attending school yet. Parents of these children have time on their side, they can start to save a monthly amount to build up a ‘college fund’ as the Americans might call it. This group have not had it all their own way, for example family allowance will be withdrawn for some and everyone is being hit by the increased cost of living, but time is more on their side.
The third group sits in the middle, they have some time but University is approaching fast, for this group costs will be borne from a combination of existing investments, income from parents and possibly savings made between now and University.
In the next article in this series we look at some of the ways you can hope to meet these costs if your child is due to attend University in the near future.