Personal finance stories are no longer confined to just the financial pages, they are increasingly being seen on the news pages and even the front pages of many newspapers. Like it or not, finance has also spilled over into our dinner conversations – house prices, pensions and savings have all become hot dinner table topics. A topic that is often discussed is the cost of higher education.
The deposit on a first home (with associated fees) is around £8,000. A typical three-year course at university is currently estimated to cost £22,500. This figure rises to £35,100 after 18 years (assuming a modest inflation rate of 2.5 per cent a year).
It is clear that families need to start saving to meet this financial goal.
Awareness of the need to save for children has been increased by two additional factors. First, the Government's desire to encourage families to set aside dedicated savings for new-borns. Second, recognition by industry bodies, such as the FSA, of the importance of saving for hig-her education.
Plans to encourage parents to give children a financial headstart when they reach 18 via the introduction of the child trust fund are being proposed by the Government. Further announcements on the CTF are expected in May or June this year. The proposition is a sound demonstration of the Government's commitment to understanding the special circumstances of families with young children and the issues facing them.
As announced in the Chancellor's pre-Budget report on November 27, 2002, if it all goes to plan, the CTF will be available in an open market rather than through a chosen panel. It is hoped that this will maximise access for consumers and provide a level playing field on which children's savings specialists, such as The Children's Mutual, and bigger non-specialist providers can compete.
Although the CTF will be a sound start to financial planning for a child, parents and others concerned with giving children a solid financial foundation will want to consider further savings and have a robust plan in place for their child.
The FSA's first financial risk outlook paper, published 2002, made specific note of “debt overhang” among the newly graduated and commented that “ increased demand for higher education would result in a growing number of students and parents looking to finance university fees and expenses ” This year's paper is far more prescriptive, stating that “ parents will have to balance the long-term planning needed to fund their child's education with the need to fund their own retirement and to ensure an appropriate balance between these competing demands ” Strong words.
The implications for those giving financial advice are clear. IFAs who have clients with children need to be aware of the potential future costs in respect of those children and that any recommendations they make about savings and investments need to be in the light of this knowledge.
Research from The Children's Mutual found that more than three-quarters (77 per cent) of parents who use IFAs believe the financial services industry needs to do more to encourage parents to save for their children. Other research also clearly showed that four out of five parents are not saving regularly and, most worrying, anecdotal evidence suggests that most do not know where to go for advice.
IFAs can further establish their value-added service and grow customer loyalty by tapping into a business source that has been overlooked – children's savings.
Advisers will be able to boost profit margins simply by maximising the opportunities available in the children's savings market and advising customers on the benefits of putting tailored plans in place for their children.
IFAs are already in a position to help parents, guardians, grandparents and godparents understand the future financial liabilities that they may face in years to come.
Raising awareness as early as possible will encourage parents to start saving sooner rather than later. The simple act of helping savers put away regular sums with a specific target in mind will help them meet future costs for their children such as for education, a deposit on a first home, a first car or even fund the ubiquitous gap year trip around the world.
Some providers also offer tools to help IFAs give savers regular progress checks on investments and adjust contributions if there is a shortfall. By doing so, savers can be assured that the right amount of money is there when the child needs it.
Another way of adding value is by advising on affordability. By auditing family finances via the fact-find, IFAs will be able to advise on how best to apportion the total household income to ensure that all life stages of the family unit are provided for financially. Advisers can bridge any knowledge gap by keeping clients informed of industry developments, for example, child tax credits and child trust funds.
Not only can IFAs help families decide how best to apportion their hard-earned cash but they can also play a vital role in keeping the dialogue flowing between the Government, regulators and financial product providers.