News of next term’s school fees have come as a nasty shock to parents with children at private school, or those considering it. Depending on the school, and with costs likely to continue to rise, it could soon become routine to spend £1 million or more on educating just two children.
The prospect of VAT being added to school fees threatens to take costs into another league altogether, well beyond many parents who would previously have considered private schooling a must-have.
The good news is that, for those who wish to pursue the private school route, there is a way to make the dream happen. The key is not to take it for granted, but to start investing as early as possible, specifically with schooling as your goal.
Moneyfarm, the digital wealth manager, is helping parents understand how much they need to invest, and how early. While everyone’s circumstances are different, the common factor is that investment lifts wealth from one ‘league’ to the next.
Moneyfarm’s Stocks and Shares ISA calculator indicates that with an initial investment of £15,000 and monthly contributions of £500, after ten years, investors can expect to have nearly £105,157 (from an average of projected values). That’s more than 30% of the costs of private secondary education for two children at current rates (see box below). On the same terms, over 20 years, that figure would be £259,158 or 77% of those costs.
“Some prospective parents may have felt they would have to give up on the idea of privately educating their children, or take on debt to make it happen. Some will even be resigned to working beyond their intended retirement age,’ says Chris Rudden, Head of Investment Consultants.
“But the good news is that paying for school fees is achievable. It’s less about your salary, and more about how you invest it. With an initial investment of a few thousand – perhaps from grandparents – and monthly contributions affordable from a decent salary, it’s possible to raise a sum of money that effectively cuts rising school fees down to a manageable size.”
Of course, the more you have, the greater the impact of wise investment. Those able to make an initial deposit of £30,000 in a General Investment Account (GIA) and contribute £800 a month for 15 years could then expect to have in the region of £288,454. That’s 93% of the average cost of secondary education for one child even assuming a fees increase of 3% per annum, or 38% of the cost of secondary education for two children, even assuming an increase of 9.26% per annum (see box below).
Clearly, the sooner people start investing, the better, which is why even people in their 20s would be well advised to take the plunge even before children come along.
Average independent school costs accumulated over time
At the current level with NO further rises in fees, this means:
Please note: The figures above are average projected values considering 95% of the possible scenarios. The projections include the effect of fees, assume income is reinvested and do not take into account the effects of inflation or tax. When investing, capital is at risk.
Assuming 3% rise per annum, education starting this year:
Assuming 9.26% rise per annum, education starting this year:
“The earlier you start, the better financial position you find yourself in”, continues Rudden. “Time in the market and compound interest are key to maximising returns over a period of ten to twenty years.”
However, he emphasises that it is never too late to benefit from smart investment.
“With school fees likely to continue rising in the years to come, investing now to make the most of what you have could make the difference between having options and simply being priced out of private schooling altogether”.
*Capital at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future.