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University fees – 'it's crucial to save sooner'

Mr H from London explains why he's saving for his children's university costs as early as possible.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

£50,000. That’s the amount of debt that the average student in England is leaving university with these days.

And while some will never pay back the full amount, it’s still an overwhelming figure for many students.

Understandably, parents and grandparents are stepping in to provide a little financial support so their children aren’t saddled with debt as they enter their adult lives.

But if you’re saving for a child and want to make life easier, it’s best to save as soon as possible. One of our clients, Mr H from London, explains why he’s investing sooner rather than later in a Junior ISA.

This article is not personal advice. If you’re unsure, please seek advice.

Discover more about Junior ISAs

Case study – Mr H from London

What are your views on the costs of university?

When I went to university, I was lucky that it was at a time where we didn’t have to pay the fees that students do today. The costs have obviously gone up in recent years and I don’t expect them to go down from here as there’s still a great demand for people wanting to go to university.

The debate about fees is an interesting one. People often phrase university as a cost but it can be seen just as much as an investment. By going through further education, you’re showing that you’re committed to a career path that will hopefully give you better prospects in the years to come.

Read our university costs report

Do you think your children will have it harder financially than you did?

Definitely. It’s not just education costs. Once they’ve graduated, they will also face financial challenges as they move onto the next chapters in their lives, such as possible home ownership. To help smooth that transition into adult life, I believe it will be helpful for them to have some savings behind them.

Why did you choose to use a Junior ISA?

It’s tax-efficient. You don’t have to pay UK tax on your child’s investments which is a great bonus. It was also a simple decision administratively as I already had an ISA with Hargreaves Lansdown. I’ve linked the children’s accounts to my own so at the click of a button, I can just go and see their investments which is helpful. You can start to accumulate wealth relatively easily.

The flexibility of the Junior ISA is also useful. If my children decide not to go to university in the end, the money can be used for something else such as buying a car or more importantly, a deposit on their first place. I also like that the child cannot access the money in the Junior ISA until the age of 18 so you know that that money is locked away and ring fenced for their future.

Discover more about JISAs

Why did you choose to invest rather than save as cash?

Cash accounts aren’t offering horrendous rates, but they’re also not fantastic. And I think in order for the money to work, it’s important to put the money into stocks that were undervalued or provide some dividend income. Historically, the returns from cash simply haven’t been there over the long term.

I think many people don’t appreciate how accessible investing in stocks and shares is these days. It’s not just reserved for the City of London. Platforms, such as Hargreaves Lansdown, have made it easy for the normal investor.

How did you invest your Junior ISA?

I’m mainly invested in dividend-paying FTSE 100 blue chip companies. More recently, I’ve moved into some emerging technology stocks, which are more growth focused. I wanted to diversify away from investing just in banking stocks and it means I have a mixture of growth and income stocks.

See our JISA investment ideas

When do you contribute to the Junior ISA?

It’s not predominantly every month. I just tend to save when I have a particular investment in mind or have additional money that might be useful for them. Similarly, I encourage friends and family to try and provide money for their Christmas and birthdays.

It's obviously crucial to save sooner rather than wait. The earlier you start, the more of a cumulative effect you can have on savings. I’ve set up their Junior ISA accounts to automatically re-invest any dividend payments they receive so they can benefit from this compounding effect. Of course, if I only look to finance them to go to university in their teenage years, that’s quite a lot of money to find for two people in a relatively short period of time. That’s why putting the money away as early as possible is so useful.

Have you spoken to your children about money?

My daughter and son are 6 and 8. They know that they have a Junior ISA and that I encourage some of the family to put money into it. But as I’m sure you recognise, they’re not too transfixed on university. I imagine these conversations will come up in their teen years.

Please note that unlike the security offered by cash, the value of all investments and the income provided by them rises and falls, meaning your child could get back less than you invest. Tax and ISA rules can change and benefits depend on your child’s circumstances.

Read our university costs report

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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