Robert Oakden’s daughter is four, but he’s already “saving hard” in case she chooses to go to university in 14 years’ time.
Robert, a 46-year-old financial adviser at wealth management firm Quilter, says he wants to do anything he can to take away from the “financial stress” that she may face at 18, and does not want her to take out a student loan because of how “bonkers” the system is.
“Students end up in an endless cycle of repaying their loans and it’s a massive burden,” says Robert, who lives in Nottinghamshire.
University tuition fees are currently capped at £9,535 per year for most undergraduates, and students who go to university currently start to repay them once they earn over £25,000.
They accrue interest at the Retail Prices Index (RPI) measure of inflation and repay the loans until they are cleared, or after 40 years, whichever comes sooner.
The terms could change in the future, but it means many graduates could end up repaying until their sixties.
And Robert wants to prevent his daughter going through that.
“While we don’t have a set amount we want to save in mind, we want to accumulate as much as possible for her without putting ourselves and our finances under any financial pressure,” he says.
He says his primary way of saving his making a contribution each month to his daughter’s Junior stocks and shares ISA.
The amount varies as Robert’s income does, but he says the key thing is that he has the money in a “very high-risk” portfolio.
This means the money has strong returns so far, even though it risks going up and down over time.
Savers can put £9,000 a year into Junior ISAs and the gains they make are free of tax. They can invest the money in a stocks and shares account or place it in cash, but Robert says over time a lot of people do not realise that cash returns can be smaller than investments over the long term.
Robert says that he is using the stocks and shares form and his investments are averaging 10 per cent, and so the money is compounding and growing at a fast pace far above inflation.
High-risk portfolios tend to involve lots of shares in companies, which can have big returns but can also drop in value, whereas lower-risk portfolios often contain cash – which only goes up, but at a relatively slow rate – and often bonds, which are effectively investments in debt.
In terms of other savings, he also made a lump sum contribution of £3,600 into a pension for his daughter when she was born, although she will not be able to access this until at least her late fifties.
Robert says his daughter will be able to spend the money on something else if she does not end up going to university, but says to other parents, if they can afford it, it is worth saving for your children from when they are young.
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He adds: “I think as a priority, you should be looking at saving for education, house deposit, a car – those sort of things.
“If you have got enough to stretch further, you can look at something like pensions.”
Though Robert did not go to university he does not agree with the student loans system.
“I was a late bloomer and wanted to earn as soon as I could, but for those that go to university, I think it’s unfair that all different age groups pay different amounts of interest, or start paying back at different salaries,” he says.
“I don’t believe that those that earn less than £25,000 should not have to pay it back. Everyone should make a contribution to the scheme. I don’t think it’s fair on the higher earners to fund those lower earners, if that makes sense.”
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