How to make the most of your family finances

Here’s my guide to some of the costs involved with parenting, what can help you as new parents and what you can do to save for your children’s future. This was written in March 2017 and was compiled using the gov.uk and other money advice websites. However, it is only a guide and it’s worth getting independent financial advice and / or checking websites if you’re intending to follow any of the suggestions set out below.

Costs of having a child

In all the excitement, it’s easy to underestimate the initial costs of having a child, especially if it’s your first. The Money Advice Service Website has a simple calculator which helps you work out your baby budget and gives you an interactive money timeline with useful things to be aware of.

Child Benefit

You can get Child Benefit if you’re responsible for a child under 16 (or under 20 if they stay in approved education or training). Only one person can get child benefit for a child and you may have to pay a tax charge if your or your partner’s individual income is over £50,000 (see High Income Chid Benefit Charge for info). You receive £20.70 per week for your eldest or only child and £13.70 for any  additional children. You’ll need to fill in a Child Benefit claim form CH2 and send in your child’s original birth or adoption certificate. Payments can be backdated up to 3 months.

Nursery / Childcare Costs

The money advice service shows the average childcare costs you can expect to pay for your child. Part time nursery costs for under 2 year olds are estimated at £117 per week outside London and £159 per week for London. Full time nursery costs are estimated at £218 per week outside London and £302 per week for London.

Free Childcare for 3-4 year olds

All 3 and 4 year olds in England can get 570 hours of free early education or childcare per year, usually taken as 15 hours per week for 38 weeks. However, nurseries usually have their own rules on how the 15 hours are allocated and what is included. The 15 hours aren’t usually available during school holidays (half-term, summer holidays etc). There are pilot schemes which are considering extending this to 30 hours per week, but both parents need to be working, earning at least 16 hours per week of the national minimum or living wage and earn less than £100k per year.

Childcare vouchers

Childcare vouchers can be used to pay for the care of children up to the age of 15, or 16 if they are registered disabled. You can apply for Childcare Vouchers using the Mylifestyle portal. Through this scheme, you agree to reduce your salary by a certain value, and receive Childcare Vouchers to the same value but pay no tax or National Insurance on those vouchers. You can save up to £892 a year for basic rate taxpayers and £623 for higher and additional rate taxpayers. They can be used for home based care such as childminders, nannies or au pairs, pre-school care such as nursery schools, play schools or crèches and care for older children such as breakfast clubs, holiday clubs etc. However, anyone receiving tax credits may wish to check what impact childcare vouchers could have on these using the HMRC calculator.

University Tuition Fees

University fees have now increased to a maximum of £9,250 per year, meaning an average 3 year degree will incur around £28,000 of fees. Research by the think tank Intergenerational Foundation goes further, suggesting that paying back these fees could potentially cost up to £54,000 due to interest payments on top of the initial loan sum. Adding maintenance loans or living costs to this figure means it now costs a sizable amount of money to obtain a degree.

Deposits for Mortgages

It’s become common place for children to look to their parents to help get on the property ladder. A recent story in the press suggested that first time buyers now need £22,689 in savings to afford the upfront costs on an average house. This includes a deposit of 10%, stamp duty, valuation and survey fees, and conveyancing costs. This assumes the national average house price for first time buyers of £198,325, considerably more would be needed for properties in the South East and London.

If possible, saving for these major costs sooner rather than later can ease the burden.

Junior Individual Saving Accounts (ISA)

Junior ISAs are long-term, tax free savings account for children. Your child must be under 18 and living in the UK. There are two types of junior ISA:

  • a cash Junior ISA, e.g. you won’t pay tax on interest on the cash you save
  • a stocks and shares Junior ISA, e.g. your cash is invested and you won’t pay tax on any capital growth or dividends you receive

Your child can have one or both types of Junior ISA. Parents can open and manage the account but the money belongs to the child. The child can take control of the account when they’re 16 but can’t withdraw the money until they turn 18. You can apply for these ISAs through getting an application form from your chosen account provider (typically banks, building societies or stock brokers).

Anyone can pay money into a Junior ISA, but the total amount paid in can’t go over £4,080 in the 2016 to 2017 tax year. Money in a Junior ISA belongs to your child and can’t be taken out until they’re 18, though there are exceptions to this.  Junior ISAs automatically turn into an adult ISA when the child turns 18. The previous Child Trust Fund scheme (which also provided tax free savings accounts for children) has now closed, though money can be transferred from these schemes to a junior ISA. Current Annual Equivalent Rates (AER) for the best performing junior cash ISAs (as of March 2017) are around 3%, compared with best performing adult ISAs of around 1% for instant access to 1.3% for 3 year fixed rate deals.

There are calculators on-line which help you estimate how much you could save, for example: the calculator site or this is money

For example, assuming you are saving a fixed amount each month from the birth of your child until they are 18, and assuming a 3% AER you would save:

  • £20 per month would give you a total of £4,320 paid in and with interest a sum of £5,710.
  • £50 per month would give you a total of £10,800 paid in and with interest a sum of £14,276
  • £100 per month would give you a total of £21,600 paid in and with interest a sum of £28,552

Self-Invested Personal Pension (SIPP)

You could also consider starting a personal pension for your child.  Every child is eligible for a pension from the day they are born. It is taken out in the child’s name and anyone can contribute – parents, grandparents, other relatives – a maximum of £2,880 year and get 20% tax relief. So it is topped up by the government to £3,600. You can contribute more than £2,880 but anything above that limit won’t benefit from a government top-up. An added bonus for parents and grandparents is the £2,880 a year contribution is below the annual £3,000 gift allowance for inheritance tax.

The long-term nature of a child’s pension investment means savings can be considerable. For example, if the £3,600 maximum contribution is made every year up to the age of 18 and with a 4% growth rate, even if contributions are not maintained, the pot is worth around £100,000. By continuing contributions to the age of 55, the pot could be worth nearer £710,000.  When your child reaches 18 they take ownership of the pension and can keep adding contributions or leave the savings invested. However, it is worth remembering that there are risks with pensions too, for example the age at which pension pots can be cashed in is being pushed back all the time and there is no guarantee that future governments won’t tinker with the pension system which could affect the investment.

Several of the big insurance companies and pension providers offer basic, low-cost stakeholder pensions. Fees are capped at around 1% a year but these products have the least investment choice. For people wanting to take a DIY approach brokers allow you to pick your investments – you can opt for shares, funds, investment trusts, ETFs, bonds or cash.


Written by Lee Bowerman

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