ISA: Parents urged to open Junior ISAs as university costs skyrocket

Martin Lewis advises against children’s savings in Premium Bonds

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In the current tax year, ISA accounts can have up to £20,000 saved into the four main options which includes cash, stocks and shares, innovative finance and lifetime accounts. Junior ISAs can also be set up for those aged under 18 and these accounts have a limit of £9,000 per year.

Fresh calls have emerged for parents to set up and invest in Junior ISAs as university costs skyrocket.

Fidelity International calculated that by investing £175 a month into a Junior ISA, parents could generate enough to help children cover their university costs by the time they reach 18.

This calculation comes ahead of next week’s results day, where thousands of students will receive their A-Level results, with record numbers awaiting confirmation of a university place.

This will be an exciting yet costly endeavour for many however, with annual tuition fees up to £9,250 per year and living costs outside of London reaching up to £28,000 for a three-year course, those collecting their exam results will face university costs of approximately £56,000.

READ MORE: Income tax: Protect your ‘hard-earned money’ through ISAs & pensions

University costs

Parents have been urged to act as university costs rise (Image: GETTY)

Additionally, with inflation also rising and student loans linked to the Retail Price Index (RPI) measure, students leaving university over the next few years should be aware of the implications of how this may affect their take home pay once their income reaches the threshold to start making repayments.

Emma-Lou Montgomery, an associate director for Personal Investing at Fidelity International, commented: “Summer is always an exciting time of year for students.

“Whether heading off to university or starting their further education virtually from home, this is the first taste of independence for many.

“However, it is also a time of responsibility, where they make one of their first major financial decisions.

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“With the costs of a typical three-year degree amounting to more than £56,000, students need to think carefully about how borrowing now to pay this sort of amount could eat into their take-home pay long after they have moved on to the next stage of their life.

“In particular, they must consider how inflationary changes could affect how long they will potentially be making repayments for.

“Parents wanting to help their children and give them more flexibility may well look at whether they are able to offer financial support – however, accumulating more than £56,000 requires careful forward planning in itself.”

Fidelity demonstrated how choosing to invest £175 a month into a Junior ISA from the moment a child is born could hypothetically generate a pot worth more than £56,000 by the time they are 18 – enough to cover today’s university costs. That said, with investing, capital is at risk.

ISA

All ISAs provide tax perks (Image: EXPRESS)

This assumes a steady five percent growth rate, no platform service fees on Fidelity Personal Investing Junior ISA products, and minus a typical annual management fund charge of 0.75 percent per annum.

In a similar scenario, for those with less to invest, a monthly saving of £100 could generate returns of £32,000 – more than three-years’ worth of tuition fees, while saving £50 a month could generate returns of £16,000.

Ms Montgomery continued: “Planning your child’s financial future may not be the most of your immediate priorities when you’ve just become a parent, however it could be one of the most beneficial things you do.

“Whether they end up going to university, starting a business or travelling the world, knowing that they have a nest egg with which to achieve their dreams will give you peace of mind.”

For students themselves, Ms Montgomery concluded by sharing her top tips for managing finances:

  • Know your budget: For returning students, it’s a good idea to write down how much rent, bills, and food costs are so you can avoid overspending. If you’re just starting out, then take some time before you leave home to work out a weekly/monthly budget that will work best for you. Whatever savings can be kept aside as part of an emergency fund will also prepare you for any unexpected surprises or welcomed opportunities!
  • Reap the full benefits of being a student: Starting university, especially when some of your courses could still be online, will mean that investing in good technology may be crucial to accessing certain lectures. Make sure that you shop around for deals and use any student discounts available. Before making any expensive purchases, make sure you know exactly what is needed. When it comes to books for your course borrowing from a library where you can or buying second hand will save make it significantly cheaper. In addition, booking an appointment with your bank to see what options there are for student bank accounts could also help you to understand your finances.
  • Part-time jobs: The jobs market has felt the repercussions of the pandemic, so preparing now will ensure you’re in the best position to start applying. Make an appointment with the careers department at university to look at your options and see whether you can join any societies or a job around university or the holidays to give you the experience that you need. Working part-time on campus or at home could also give you some extra independence and boost your income.
  • Educate yourself: Money management is a crucial part of everyday life. Given the disruption caused by the pandemic and impact on younger people’s earning opportunities, it’s vital you spend time getting to grips with how to make your savings work for you. Fidelity International’s research found 47 percent of those in their 20s are worried about their financial situation since the start of the pandemic. Understanding different types of bank accounts, savings and investments will put you on the right path for the future. There are plenty of podcasts, books, and videos online to help you get started on your financial wellbeing journey.

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