Saving for Your Child’s Future in Hard Times
There is a currently a wealth of information and research being released regarding the cost of living and in particular the cost of raising children. It is therefore an opportune time to look at what the latest pieces of research tell us not only about the costs of bringing up children but the value in investing in their future. Almost everybody is feeling the pinch but is it too easy to forget about the longer term?
The latest edition of the Cost of a Child: From cradle to college 2012 report by Liverpool Victoria and the Centre for Economics and Business Research from January 2012 estimates that the average cost of raising a child has shot up once more (by 3.3%), now reaching £218,000 across the period until the child reaches 21. What’s more, with incomes stagnating or even dropping, the ability of parents to afford these rising costs is not keeping pace. Indeed the same research also indicates that 76% of parents are being forced to make cuts in their spending and perhaps more worryingly, 43% of parents are actually reducing the amount they put into savings accounts.
This may not be new news to most parents but it does seem to be focusing their minds on the affordability of childcare in the here and now rather than necessarily thinking about the future.
However, the research also indicates that the steepest rise in the cost of bringing up a child is incurred when funding the child through higher education and that the rise isn’t so severe in the earlier years. It may hint at a suggestion that parents should try to put money to one side in these early stages to fund their child’s first adult years and there are further reasons why saving for this time is worthwhile.
House prices are currently stagnating, demonstrating that they are seemingly unlikely to fall drastically even when times are tough. It would appear that there is some positive news in the market for first time buyers (FTBs) in that there are now more houses available which theoretically fit into the affordable bracket (less than 4x the average income of the area) than at any time in the last eight years. Although, more worryingly for the future that doesn’t translate into buyers being able to afford these in practice asmortgage lenders are requiring higher deposits and so buyers are prevented from moving into the marketas easily as they once did.
In fact the picture for first time and non-first time buyers reflects this. Depending on the research, the average age at which FTBs enter the market now is somewhere between 30 and 38 whilst being predicted by some to reach 40 before the decade is out. Research from Halifax puts the number of FTBs in the market at a record low and Scotland for example, according to the BoS has the lowest number of FTBs in the market since 1976; despite the paradoxical finding that the average price in 77% of local authorities is now classed as affordable in comparison with the average wage.
Research just out from the Association of Graduate Recruiters shows that graduate salaries are on the rise despite the difficulties seen by the job market. The average wage for a graduate is anticipated to rise to £26k, a 4% rise on the previous year whilst the number of opportunities available to graduates is actually dropping. The evidence therefore seems to point towards a more competitive graduate job market where jobs may be harder to come by but one in which the salaries will be more rewarding for those who are successful. The trend may be indicative of a flight to quality in a period where employers are ensuring that they get the best returns on their personnel investments and does suggest that even, or perhaps more so, in a struggling economy, having an academic background may give your child a head start. Saving for your child during their upbringing can ensure that they are better placed to support themselves throughout their higher education and get the qualifications they need (even putting to one side the issue of tuition fees which may be best repaid later on in life).
In conclusion, the latest research when taken in unison paints a picture in which families are unfortunately being squeezed from all sides; being forced to cut back on outgoings in the present but requiring the investment in their child’s future more and more. This will lead to many families needing to make some very difficult decisions but it is crucial that as much as is possible, they keep the long term in their thoughts and don’t simply focus on the present.
© Stuart Mitchell 2012