An education in funding school fees
When it comes to our childrens' education, it's only natural to want the very best.
For some parents, sending their children to private school comes high up the priority list. However, funding a private education is no small consideration. With primary schools costing up to £15,000 per annum and secondary schools anywhere between £20,000 and £35,000 per annum per child, school fees can often equal or surpass the cost of paying a mortgage! And it doesn't end there of course - there's also University tuition fees to think about once children reach 18.
As such a considerable sum, school fees is often something we work with clients on as part of their overall financial planning. Here are five things to consider...
The true cost
Whilst higher earners may think they can afford school fees out of their income, the true cost of fees can come as a bit of a surprise. This is because schools typically increase their annual fees ahead of current rates of inflation - something that isn't always factored in by parents. When putting together projections for school fees for clients, we typically account for a 5% increase per annum. If paying for more than one child, this can quickly add up!
We typically find that clients have a very cautious approach when it comes to money that is allocated to school fees. This makes a great deal of sense; education is viewed as fundamentally important and therefore not an area in which clients like to take unnecessary risk - particularly if a child is settled at a school already. Clients that have a pot allocated for school fees or are alternatively making a regular saving for this will generally want to keep this is a low risk environment. However, this comes at an opportunity cost of a low interest rate/little potential for growth.
If you know your child is happy at a school and you've no plans to move from the area, it might be worth finding out if the school has a pre-payment plan. This usually involves making a lump sum payment up front for one or more years. Although coming with a level of risk, for example if the school goes into administration, this can 'lock in' a discount on current fee rates.
As discussed above, the cost of funding a child through a full private education, from nursery right through to university, can run into the hundreds of thousands. You might therefore want to consider other options for certain stages of education. After all children can thrive in state schools and sometimes achieve just as good grades as they would in a private school. If there is a grammar school in the area or schools ranked as ‘Outstanding’ by Ofsted, you may want to consider sending your children to that secondary/primary school for that stage.
When it comes to further education, some parents like to use JISAs. When saved into over a number of years, savings in a JISA are able to accumulate in a tax free environment for the child to access to pay/put towards University tuition fees.
As an aside to this point, it's worth saying that although you will want to help your children be able to attend university, that doesn't mean you should fund the whole thing - living expenses and all. Having your children leave university with some debt may not be a bad thing. Yes, you heard that right! A bit of debt can teach children (or young adults!) about the realities of life and get them into the mindset of working to pay back what is owed so they are used to fiscal responsibility when it comes to getting a mortgage in later life.
Working out how parents can best pay school fees is just one area where Addidi helps its clients. For further information or advice, please contact us.