Children are expensive. It’s not a secret and never has been, with the average child costing 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 plan, making sure that your children start saving for those big purchases now – importantly they can pay for them rather than you!
The earlier you start the better. From a young age, children recognise the value of money and understand that it can be exchanged for things they want.
Warren Buffet, the so-called Age of Omaha, learned from a young about money from his father 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 2000’s the fastest growing group declaring bankruptcy are young adults age 20-24.
Sound financial habits learned early on can lay the foundations of financial success later on in life. But remember they still need your guidance and you’re not off the hook entirely for those big expenses. But you can make it slightly easier for yourself and them. With the new tax year underway, the Government has been generous enough to raise the maximum you can save into a Junior ISA to £9,000.
So let’s put this into a real-world example, your child is 18 and the dreaded ‘must-haves’ are needed. However, together you have been saving into your child’s Junior ISA since the day they were born and now you nervously want to have a look to what that has amounted to.
So for 18 years, you have been diligently saving £750 per month into a simple equity index tracker, within a Junior ISA. According to historical records, the average annual return since the index’s inception in 1926 has been roughly 8% per annum. Which is what you have achieved. When you both peak into the Junior ISA (with bated breath) you and your child would have saved £351,486! Which was made up of your contributions of £162,000 ( I did say you were not off the hook entirely) and investment growth of £189,486.
I am sure this would cover any of the latest ‘must-haves’, even with the new release of the new I-Phone 62!
The key as always is to start early and have the patience to see things out, I am sure there are a few people reading this thinking never mind the kids I would be delighted with that result and I see no reason why someone in their 40’s cannot save this amount per month to give themselves a fantastic retirement come 65.