£228.17 a month: the cost of a child’s university education
New parents will need to save £228 a month to cover the cost of their child’s university degree, as new analysis suggests these expenses will rise to £74,307 by 2033.
If university costs increase in line with inflation, tuition fees will rise to £12,854 a year by 2033, and living costs will reach £11,426.
Investment platform Rplan.co.uk, which compiled the figures, said that the target of £74,307 could be reached in 18 years by investing £228 a month, assuming a 4% annualised return after charges from a medium-risk portfolio.
However, saving a university fund in a Cash Isa would need bigger monthly contributions to reach the goal over 18 years, as interest rates on easy access Isas currently average 1.11%, requiring monthly savings of £311.
Stuart Dyer, chief investment officer at Rplan.co.uk, said: “Investors with a longer time horizon can typically take more risk, however even with an 18 year time horizon parents may not feel comfortable with a high-risk approach to investing for their children’s education.
“That’s no reason to discount investments altogether though, as they typically offer the potential for better returns than cash – even when a medium or lower risk approach is selected.
“Saving monthly helps to diversify risk over time – it also allows investors to take advantage of downturns in the market by providing the opportunity to buy investments at cheaper valuations over the long term, known as pound-cost averaging.”
Parents who delay starting their child’s university fund would need to put away more as their money will have less time to grow. Waiting five years would increase the required monthly contribution to £363.
Dyer added: “Our analysis also shows how allowing as much time as possible for investments to grow is key: shortening the time to invest can have a major impact on just how much needs to be saved each month.”
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).