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Danby Bloch: Tips for financial planning on school fees

In the first of a new series of articles, Danby Bloch, editorial director of Taxbriefs, uses statistics from the publisher’s Professional Adviser’s Factfile to examine the planning processes around advising on school fees.

The story goes that the bursar of one famous independent school wrote to a parent requesting that he pay the next term’s school fees based on the rate of so-many pounds per anum – omitting a crucial ‘n’ in the Latin word for year. The parent wrote back with a cheque and commented that he would prefer to pay through the nose in the usual way.

School fees are a major cost for many families. Many clients pay school fees or expect to pay them for their children, grandchildren or other relatives. So, financial advisers should have an up to date working knowledge of the subject.

School fees planning strategies can take several forms – and they should all be based on a sound understanding of the economics of UK private school education.

First, there is the budgeting challenge. Families need to understand the potential impact of school fees on their future spending patterns. The key question might be whether a family can realistically afford private school fees – or at least what kind they can afford.

A grandparent might want to set up a trust or other fund to cover all or some of their grandchildren’s school fees; so they need to know how much to plan for. Parents might want to do the same – although that is rarer; they realistically tend to want to have a reserve to tide them over for a patch of illness or unemployment. So it is important for them to have a good an idea of termly school fees costs. And then most parents with children in private education will want to insure themselves – so it is important to know the facts to set the amount of the insurance needed for this purpose.

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Then, once a family has committed to paying school fees, it is important to insure the lives and health of the key income earners. Advisers need to try and predict patterns of expenditure to assess how much cover their clients need.

The page in the Professional Adviser’s Factfile on school fees focuses on the costs of different types of schools and their location as well as the rate of inflation in school fees over the years. It is well worth studying fee levels and their trends.

The first chart – termly fees by age group – shows how school fees tend to increase as children get older. So day school fees advance from about £2,500 a term to nearly £4,000 a term in the sixth form. Boarding school fees are unsurprisingly generally more than twice the cost of the equivalent day schools. These crude figures provide parents and others with an often-needed reality check – especially of how the costs will escalate so much even in today’s pounds.

Of course these are all average fees and some of the very prestigious schools – Eton, Westminster, Cheltenham Ladies College and so on typically charge much higher fees than the average shown here. You might think that school fees vary according to the part of the country in which a school is located. And of course they do, which could be helpful in refining the planning for a particular family.

But the sting in the tail is the rate of inflation for school fees. This is the last set of data – the percentage increase in average fees going back 14 years. The line graph compares the increase each year in comparison with CPI and RPI. School fees tend to increase significantly faster than the RPI or CPI. And this high rate of escalation needs to be incorporated in any planning calculations for funding or financial protection.

It is important to be able to discuss why school fees inflation is generally so high. The basic reason is that at least two thirds of the cost of running most educational establishments is the salary role, with relatively little scope for productivity gains. A more recent inflationary factor has been strong overseas demand for UK private education, fuelled for several years by the declining value of the pound. A stronger pound and the economic downturn have dampened school fees inflation. But school fees are still rising and advisers can be reasonably confident that parents will still have to pay through the nose to educate their children for the foreseeable future.

The statistics in this article are taken from the February update of the Professional Adviser’s Factfile, the essential sales aid for busy financial advisers. A single source compendium of key facts and figures, Factfile supplies monthly updates, targeted statistics and concise explanations of core concepts so that you can focus on providing quality advice. Readers of Money Marketing who are new subscribers can order the Professional Adviser’s Factfile for a 10 per cent discount using promo code ARTM. Simply call 020 7970 4142 or visit www.taxbriefs.co.uk/paf

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