Financial planning for your children’s future

Whether it’s helping out with pocket money and later in life with driving lessons, tuition fees and even a deposit on a house, it seems the ‘Bank of Mum and Dad’ is always open.

The sharp increases in the cost of going through university and in the deposit first time buyers must place on their first home purchase in particular leave many young people dependent on their parents for large-scale financial support well into their twenties and sometimes beyond.

There are few signs these pressures will ease. Tuition fees in England of up to £9,000 per year next year are just the start. Adjust for inflation at 2.5% a year and it means that for today’s toddlers the average cost for a three-year degree in 18 years will total £32,750, according to research published in October 2010 by fund manager M&G¹.

Financial planning for your children is increasingly important. Of course, you could consider encouraging self reliance and an awareness of money in your offspring from an early age. A good way to start is by setting up bank accounts for your children and getting them to save regularly.

Opening an account should be simple and quick to do and can often be done online. Your children can operate their own savings accounts from the age of seven and the minimum investment for basic bank accounts is often only £1.

Most children should not pay tax on the interest they earn from saving as their annual income tax personal allowance is more than £6,000. If they are given money by their parents, however, the taxman treats annual interest of more than £100 as the parents' own and will tax it.

At the age of 16 your children can graduate to a bank account allowing them ATM cards for cash withdrawal, the ability to set up direct debits and, in some cases, debit cards. Operating their own account will help educate them about earning interest and about saving for the long term so they are more financially savvy when the time comes to leave the family home for university.

At 18 they can gain access to full accounts including student bank accounts. These offer an array of benefits and freebies² but not all of them are equally valuable. With luck, by the time your kids decide which student account to go for, they will be switched on enough to looked past that free music player and consider the more important aspects of banking.

Hopefully your now shrewd offspring will consider the important factors such as the overdraft facilities on their bank account, whether a bank has student advisors or not and whether there a branches on or close to campus.

1: http://www.thisismoney.co.uk/savings-and-banking/article.html?in_article_id=516675&in_page_id=7

2: http://www.thestudentroom.co.uk/wiki/Student_Bank_Accounts
http://www.studentbankaccounts.co.uk/

"This article has been written for information and interest purposes only. The information contained within this article is the opinion of the author only, and should not be construed as advice or used to make financial decisions. Expert financial advice should always be sought and any links contained within this article are included for information purposes only."

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