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The child in time

Education was a hot topic in the election, with Tony Blair announcing the objective that 50 per cent of under-30s should be going through higher education by 2004. But the funding burden has shifted from the state to the individual.

The latest figures published on student debt reveal just how dramatic this “pay as you go” burden has become. The NUS is estimating that a student finishes their degree with an average debt of £12,000. If you think the NUS “would say that” then try Barclays&#39 figures for size. This year&#39s debt averaged £10,000, a whopping increase on £6,500 just a year ago.

This brings me to my own bit part in this saga. When I was a student back in the late 1980s, I remember that for a couple of hours, around 30,000 students brought central London to a halt demonstrating for “grants not loans”. We had no idea as we boarded our coach back up the M1 that we were the last of a privileged generation.

The funding issue is increasingly embarrassing the Government. Taking the Government&#39s own aspirational figure, 50 per cent of our children will have a £10,000 debt around their 21st birthday celebrations. Paying this back through the current loan scheme effectively adds a further 9p in the pound taxation and the debt may increasingly exclude them from buying a home or even accessing simple things such as car loans in their 20s.

The Government is trying to shore up this escalating debt with bursaries and hardship funds but many students from low-income families are missing out on higher education. Evidence is starting to appear that students from poorer backgrounds are balking at the idea of saddling themselves with such a millstone in uncertain times.

Earlier this year, the idea of a child&#39s trust was floated by the Government as a long-term solution for addressing cycles of poverty in disadvantaged groups.

In a nutshell, it is likely to be something in the region of £1,000 invested for each newborn child, with a target maturity at age 18 and based on a tax-exempt fund such as an Isa or friendly society bond.

The friendly society movement has been contributing heavily to the debate, having built up substantial expertise in long-term children&#39s savings. The initial consultation period is over and we are expecting further announcements and a target implementation date from the Government this year.

Every IFA knows that, like pension planning, the trick to addressing something like education funding is to deal with the situation early and frankly. However, many parents of tomorrow&#39s students, who themselves emerged debt-free from college, remain in denial and are struggling to face the size of the financial hurdles ahead. Today&#39s parents have to contribute over £500m towards the costs of further education, a fivefold increase in just a decade. Good financial advice could do a lot to take away some of this financial pain.

For some IFAs, the child&#39s trust is simply not on their radar while it remains a concept. Some might argue that its introduction could create even more parental apathy and further damage the educational fee market. I would argue that it could be a huge boost to the market and IFAs should stay very close to the discussions. Those who have increasingly benefited from educational planning could be well placed to increase their business in the near future.

Let us consider some of the arguments.

First, the fund, as we currently understand it, would only mature at 18, so it should not affect basic school fee planning.

Unlike stakeholder, which remains optional for the individual and involves people investing their own money, the child&#39s trust will be a free cash injection directly affecting 700,000 new births each year.

The fund, if only based on £1,000 or less, is not going to scratch the surface of what is required. Considering the escalating costs of accommodation, providing computer equipment and the expectations of students themselves to travel, etc, further parental funding would be advisable.

The child&#39s trust may even prove to be an incentive for further saving. The IFA should see the child&#39s trust and any decisions about where to invest it as a gateway to additional planning.

What about the missing generation? Consider the effect of a guillotine date for implementing the child&#39s trust. I believe it would stimulate a small boom in children&#39s savings. I would ask any parent reading this, how would you feel if your new born gets £1,000 tucked away for them at birth while your existing one-year-old and three-year-old have nothing?

Considering the missing generation, friendly society bonds can be set up in the name of the individual child and make an excellent vehicle for long-term savings.

Some IFAs who in the past have shied away from such low premiums might want to reacquaint themselves with these products.

The impact of the child&#39s trust could touch millions overnight and bring a constant stream of individuals to an adv-iser each year looking for assistance in an area where the financial demands have increased dramatically in a few short years.

Tax-free bonds, which are unique to friendly societies, can provide a useful tool for top-up planning for those qualifying for the trust and as a stand-alone option for those that will miss out.

Today&#39s parents have to contribute over £500m towards the costs of further education,a fivefold increase in just over a decade

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