We all want to give our children the best possible start in life. For those with the resources, that will very often mean investing in private education – and increasingly so now. Though there have been state schools doing an admirable job of lockdown learning, an undeniable divide has emerged in the quality of provision that has been driving more and more families towards private schooling.
Parents know that the private path is a long-term commitment of increasingly heavy expenses, however. The eye-watering average annual fees of £15,000 (and over £40,000 for the best secondary institutions) continue to rise, meaning that conservatively you could be looking at over £500,000 to privately educate just one child from reception through to university (you mustn’t forget all the extras like equipment and trips). Larger families entail some very big numbers indeed.
While you certainly could pull a child out of private education if unforeseen circumstances suddenly made the burden impossible, most would naturally prefer to avoid this eventuality at all costs. The question then is how to plan and invest for a hefty outlay year in year out, without it causing you undue stress or a reduction in living standards elsewhere.
Plan for success
You will be seeing by now just how vital it is to implement a resilient investment (and tax-efficiency) plan which truly makes your wealth work as hard as it possibly can.
As with all things related to your wealth, the earlier you start planning the better. You should aim, well before enrolment, to get a firm handle on what a selection of preferred schools are charging and how those fees have and are likely to rise. Then build in some inflation scenarios for the duration you will be paying overall.
Some might be lucky enough to have the entire lump sum and so could look to pay in advance to lock in lower fees. Paying out of your regular income is another option, but carries the worry that your earnings could take a hit down the line. Far better for most then is to base a strategy on an investment portfolio. Cash savings, as we know only too well, have been generating negligible returns for a long time now.
By investing in a portfolio specifically for school fees as many years in advance as possible, you can yoke together robust returns and the power of compounding to build the amounts you need. If, for instance, you only wanted to go down the private route from secondary level and started when your child was born, you’d have a 12-year time horizon for your money to powerfully grow.
It would be perfectly reasonable to expect a good wealth manager to deliver a 6% annual return and so if you gave them £100,000 to run over that time period, you could come close to doubling your investment.
Always remember, however, that everything depends on getting the highest possible performance for your risk-profile combined with hunting out the lowest possible fees.
Be strict, as deficiencies on either side will mean missing your targets. In particular, make sure to look into every element of fees.
Pay attention to tax, too
As ever, there is a big tax-efficiency element to all this and so you should ensure you are making the most of all the tax breaks - and shelters - available to the entire family. The ability to shield investment gains within stock and shares ISAs mean both parents should be making full use of their ISA allowances each and every year (Junior ISAs are more of a university fees play, since the money can’t be touched until the child turns 18, and then becomes legally theirs).
You can currently invest £20,000 a year into an ISA and by engaging a wealth manager to run these funds you can secure very attractive returns which would also be free of tax. There are also a number of other tax-efficiencies your wealth manager could help you pursue outside of ISAs, such as by making direct investments into funds and equities and leveraging dividends allowances and Capital Gains Tax exemptions. However, in a rapidly changing tax environment, you should always take professional advice here.
Think both broadly and deeply
The same goes for the non-traditional asset classes many people are now pursuing. Approached carefully, these can be a useful addition to parents’ portfolios, but alternatives do have a particular risk-return profile that warrants special caution. You wouldn’t want your children’s education to hinge entirely on whether a bet on an esoteric investment pays off.
Wanting to give your children the very best education is a laudable and entirely achievable aim. But these ambitions must be backed with a solid wealth management plan. As with all your financial objectives, success depends on taking on an appropriate level of risk – and via the right asset classes and instruments. Your thinking must be both broad and deep.
When your children are old enough and have benefited from a first-class education, maybe you could tell them about all the pains you took in planning to get them there. That is one lesson that certainly will stand them in good stead for life.