How to financially future-proof your child's path to adulthood
Many of today’s graduates are now heading out looking for work with debts to pay off and getting on the housing ladder might seem like a far away dream.
This reality affecting many young people makes it even more important for parents to plan well ahead to try to financially future-proof their child’s path to adulthood.
“The longer the view you take the easier it is. The key to saving for the future is to start early,” says Bob Hair, wealth planning director and head of Edinburgh office at Cazenove Capital.
“If you put something away sensibly over a longer period of time it will be less disruptive on your own life. It’s a question of having discipline around savings and being clear about what you want to do.”
So, what are the best ways to financially prepare for your family’s future?
One tip that families can adopt from the outset is to invest child benefit into a savings account rather than dip into it on a weekly basis, according to Mr Hair.
When looking at other ways to save, parents and guardians should consider how much control the want to keep over the investment.
Mr Hair says: “Parents can start saving into a pot of money that they can then drip feed to their children as they need it for such things as university or a deposit on a flat.”
For example, parents can do this by putting money into an individual savings account (ISA) in their own name so they have a sufficient amount to set aside for their children when the time comes.
It’s important for people to ensure they are saving in as tax efficient way as possible, according to Mr Hair. This can be achieved by putting the investments in the child’s name, as long as measures are in place to ensure the money is ultimately spent sensibly and at the right time.
Quite often grandparents want to be involved in saving for the grandchildren’s future which can be beneficial and tax-efficient for everyone involved.
Mr Hair explains: “Grandparents might say I want to give away my £3,000 annual allowance for inheritance tax purposes and give each of their six grandchildren £500 each, for example; If they do that over 10 years they can build up a reasonable sum of money for each of them.”
As children grow, parents should continue to save and invest. Mr Hair says that an attractive option if a youngster is leaving home to go to university is for the parents to buy a property for their child with additional rooms that can be rented out.
Some people might put the property in the son or daughter’s name,” says Mr Hair, “So they understand how finance works while getting a foot on the housing ladder.”
A final tip for parents from Mr Hair is to check what you might have invested in the past for children and forgotten about – a pleasant surprise would be to uncover money you didn’t even know you had.