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Investing in the future All young people should be able to embark on their adult lives with a financial asset to invest in their future.' From the Governments's Savings And Assets for All paper. The Government has now introduced a tax free Childs Trust Fund being set up for every child born after September 2002. Payments of £250 will be available for every child with £500 available to any child whose parents qualify for full Child's tax credit. In addition the Government will top up the account by £50 per year to age 18. The fund is designed to help give a child a good start in life, helping with the cost of university or training. The money will be tied up until 18 and will only be available to the child. Part of the Governments initiative is to encourage other family member to support the child by allowing them to add up to £1000 per annum into the account. Also as part of the plan to encourage young people to understand the savings market the plan will not be run solely by the Government and it will be possible to choose the provider with whom the money is invested. So how far will this go towards helping a child? The following statistics were drawn up by the Children's Mutual Society on the cost of bringing up children: Average
cost of a wedding : £12,000 Obviously these figures clearly indicate that the £1,150 the Government intends to give each child falls rather short of the mark. The figures all assume that the child is 18 today. A 3 year university course for a child born today could cost £34,500 (assuming 2 1/2% inflation and no rise in tuition fees). So realistically how much is needed to save for each of the above circumstances ? Starting at birth to fund for a wedding at age 18 requires a saving of £55 per month . To fund for a 3 year university course with no GAP year requires £105 per month. Waiting until age respectively 8 savings of £105 and £195 are required to fund the same amounts. By putting away just £50 per month (£25 for each parent) in a tax free savings vehicle such as a Children's Bond a fund of £17,280 will be accumulated by age 18. Grandparents could also take out a Children's Bond for the ultimate benefit of their grandchildren. With the maximum allowance of £25 each for 4 grandparents the total accumulated fund, including the parents, is £51,840 by 18. Starting at birth is obviously the best course of action but how much extra is required if saving is left to age 8? Parents saving £50 per month will accumulate a fund of £7,220 from age 8 to 18 which taking account of inflation over the intervening period may not even be enough for a first car. So where does the money come from and how can this be funded? Every parent receives child benefit which together with the child's tax credit totals £114.83 per month. Saving just the Child Tax Credit of £10.45 per week for 17 years a fund could be accumulated to cover 40% of the estimated cost of university or be enough to buy driving lessons and a dependable first car. An alternative to regular savings is making small lump sum investments. Each individual has an annual gift allowance of £3,000 which can be passed to a Grandchild free of Inheritance tax. For Grandparents there is the added advantage that this takes money out of their estate helping to reduce their own Inheritance Tax Burden . Whilst the maximum that can be invested in a tax free children's Bond is £25 per individual for each child there are many other vehicles available for topping up these savings. For all parents and Grandparents giving a child the best possible start in life is the ultimate responsibility. All the above assume projected returns of 7%. |
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