Children are expensive, with research showing that the average child now costs nearly £250,000 from birth to their 18th birthday.
Their wants and needs are satisfied more inexpensively when young. 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 help your children start saving for those big purchases now – and, importantly, they can pay for them rather than you!
The earlier you start the better. From a young age, children need to recognise the value of money and understand that it can be exchanged for things they want. Warren Buffet, the so-called Sage 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 the fastest growing group declaring bankruptcy are young adults aged 20-24.
Sound financial habits learned early on can lay the foundations of financial success later on in life. They will still need your guidance, and you are not completely off the hook for those big expenditures. But you can make it slightly easier.
Let’s start with Junior ISAs – the Government has been generous enough allow you invest £9,000 into a Junior ISA every year. So, if you have been saving into your child’s Junior ISA since the day they were born, by the time they reach the age of 18, what would this be worth?
If you saved into a simple equity index tracker within a Junior ISA then you are likely to have achieved near the average annual return of 8% since the index’s inception in 1926. This means that you would be looking at a total fund of £351,486, made up of your contributions of £162,000 (we did say you were not off the hook entirely) and investment growth of £189,486.
This would be a massive nest egg to send your children out into the real world.
The key is to start early and to have the patience to see things out. This also applied to the parents as well – and there is no reason why someone in their 40’s could not save this amount to give themselves a comfortable retirement at age 67.
So, what are you waiting for?
