This article is a brief introduction to saving and investing for private education.
It is not intended to be financial advice specific to your particular circumstances.
Saving for Private Education - Tax Efficiently
You are familiar with the basics of savings: the more you save and the sooner you save it, the bigger the savings pot will be when you need it.
So, if you want to send young Thomas to… Thomas’s… and you’re not planning on relying on grandparents or others to fund it, then the sooner your start saving, the better. But you probably already knew that.
Rather than focus on ‘how much’ you should save each month/year – which is going to highly dependent on your unique circumstances – let’s focus on how to structure those savings.
Investing for Private Education
It can be difficult to decide the investments that one should make for an ‘education fund’. In general, one has to take more risk in order to generate a higher return but we’re talking about your children’s education – so you probably don’t want to take too much risk.
The best way to think about this is to consider the timeframe. If you need the money in the next few years, a savings account or Premium Bonds is almost certainly your best bet. If you’re planning for school fees in ten or more years, the argument for owning stocks is usually very strong. The trickiest part is usually managing the 2-10 year timeframe – and there is no absolutely correct answer. Much depends on your circumstances – for example, the ability to take out a bigger mortgage in the future gives you more cushion to take investment risk (all else being equal).
Protecting Your Ability to Fund Private Education
For many families, private education is a major priority. When the funding for private education comes from your own income – rather than, say, generous grandparents – you may want to protect your ability to pay. What if something tragic were to happen to you or your spouse?
Many employers automatically provide insurance that would pay out a lump sum and/or an ongoing amount in the event of you suffering a serious illness or passing away. Unfortunately, however, typically the insurance would not replace all of your income – which means you (or your surviving family) may no longer be able to afford private education.
It might be a very good idea to take out some form of life and/or serious illness insurance. Some insurers even offer insurance that will specifically pay for private education. Creating a policy that would pay a lump sum plus pay for private education for your children isn’t that expensive* – and would ensure your children’s education is not imperilled.
*the cost is dependent on your particular circumstances, including your age, your health and whether you’ve ever smoked – but the cost of a relatively large insurance policy is often £200-250 per month.
If you would like to discuss this further
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