John Lowe the Money Doctor asks are you fully aware of the costs of raising children? Have you made provision from existing income or even the coveted Child Benefit for your children’s future needs?
Comedian W C Fields (died 1946) was not thinking of child costs when answering the question how he liked children..."preferably boiled" though he did raise two himself.
It is estimated that the actual current cost of raising a child from birth until completion of their 3rd level education is just short of a whopping €250,000.
Recent Bank of Ireland research revealed that 80% of parents said they do not believe the current State Child Benefit of €140 per child is sufficient to help them with their children’s education expenses.
In addition, 86% of parents surveyed for the study said that any further reductions in the child benefit allowance would leave them in a "financially difficult" position when it comes to funding their children's education.
The cost of educating a child from primary school to college is estimated to be well over €70,000, a not insignificant amount of money. By far the biggest expense occurs during a time when a child is in third level education.
The research estimated that it costs about €42,000 to put a young person through college, a figure that will rise significantly if plans to reintroduce fees proceed.
Half of all parents surveyed said they planned to buy a larger size school uniforms for their children, while one in five intend to reduce pocket money by up to 50% in order to pay for school-related expenses.
Bear in mind the average pocket given to children is:
- National - €10 per week ( €520 annually )
- Secondary - €20 per week ( €1,040 annually )
- 3rd level – €60 per week ( €3,120 annually )
Nearly one in three parents will spend less on extra-curricular activities for their children due to the current economic environment, while over half will be looking to purchase second-hand schoolbooks, schoolbags and uniforms this year.
The phrase, 'you can’t get blood from a stone' rings true when income dictates the priorities. Maslow’s Hierarchy of Needs sees food, accommodation and clothing as man’s primary needs and in that order.
So how do cash-strapped parents provide for this necessary expense if they wish to see their children given the same opportunities they received?
For some families, there may be little left in the kitty to provide for their children’s education. Even if they are able to put away the Child Benefit - €140 - from the time the child is born until their 18th birthday and if that account had a net return of 3%, the total amassed would be €42,000 – the precise amount required for a child’s 3rd level education without fees.
The important word when it comes to saving for your children’s future financial requirements is START. Even the regular saver account – available in most financial institutions – is a mechanism to initiate a savings ethos.
You save between €100 and €1,000 a month for up to 12 months, after which you can then switch to a longer term, higher yielding investment. Best rates for the regular saver accounts are KBC Bank (2.5% but only when you also open an "extra" current account with them) and EBS (1.75%).
Alternatively, you could invest with a reputable insurance company’s choice of funds where over the longer term and historically proven, the stock market has proved to be the best asset class.
To justify the decision to invest in a stock market option – many of the insurance companies offer investment funds for such saving purposes – the return should potentially at least be double the best net deposit interest rate on the market in order to accept the risk of losing some or all of your investment.
Two stock market regular saver investments include Zurich’s LifeSaver account with their Prima funds and Irish Life’s Pinnacle account and their Multi Asset Portfolio funds (MAPS) – email me for details.
Should you be in the position where you have the funds now and wish to allocate them to a safe long term guaranteed return, then you should also consider the State Savings’10 year National Solidarity Bond.
This might fit the bill where you will currently receive 16% tax free on maturity e.g. €36,000 becomes €41,760 after 10 years and the 3rd level costs sorted for one child. Don’t leave it too late - planning is the buzz word.