Children are expensive! The cost of raising a child from birth to their 18th birthday currently stands at nearly £250,000.
Their wants and needs are satisfied more inexpensively when young – although childcare is becoming an ever-increasing burden. But when they get to their late teens and early twenties those ‘must-haves’ – the first car, the University education, and even a deposit on a first house – can place a massive call on your finances.
However, with time on your side, you can plan, making sure that your children start saving for those big purchases now – important, as it means they can pay for them rather than you!
The earlier you start the better. And it is important that, from a young age, children recognise the value of money and understand it can be exchanged for things they want. Warren Buffet, the so-called Age of Omaha, learned about money from his father from a young age and bought his first 40-acre ranch before leaving High School.
Your children can also appreciate the concept of planning. Research shows that 54% of parents believe their children have excellent or good knowledge of financial matters; however, only 22% of their children agreed. Unfortunately, this theme plays out in real life as in the 21st century, the fastest growing group declaring bankruptcy has been young adults aged 20-24.
Sound financial habits learned early on can lay the foundations of financial success later on.
So, let’s put this into a real-world example. Your child is 18 and the dreaded ‘must-haves’ are now required. You have been saving diligently into your child’s Junior ISA since the day they were born, and you want to know what that looks like now.
If, for 18 years, you have been saving £750 per month into a simple Equity Index Tracker fund within a Junior ISA and achieving the historical average annual return of 8% (since the Index’s inception in 1926), then you and your child would have saved £351,486. Which is made up of your contributions of £162,000 and investment growth of £189,486.
Definitely a great start to your children’s adult lives, and something that they might even thank you for forever!
So, the key is to start early and have the patience to see things out. I am sure a few people are reading this article thinking “Never mind the kids, I want some of that” and there is no reason why someone in their 40s cannot save this amount per month to give themselves a fantastic retirement at age 65.
If you would like some help with your children’s nest egg, then please contact us.
