Investing for Children to go to University (if they so wish) 19 September 2022 at 11:00PM in Savings & investments 11 replies 761 views

MJC1983

Hi,

We have two children 1 and 3 and are looking to put some money aside each month to help them with university costs / living costs when they turn 18. I am looking for a low cost passive index fund. Given the timeframes involved which fund would people recommend? 

Thanks in advance. 

Voyager2002

Firstly, spending money wisely on them during their education during childhood will be far more beneficial than a lump sum when they become adults.

Secondly, if you have spare money once their reasonable needs and educational activities have been taken care of, the standard answer on these boards is a product from the Vanguard stable. For something similar with slightly lower costs, look at the HSBC Global Strategy products.

Albermarle

MJC1983 said:

Hi,

We have two children 1 and 3 and are looking to put some money aside each month to help them with university costs / living costs when they turn 18. I am looking for a low cost passive index fund. Given the timeframes involved which fund would people recommend? 

Thanks in advance. 

You probably have an exaggerated view of what Uni costs will be. Unless the system changes by the time they may go, it is normally recommended to take out the maximum student loan possible. Then depending on parental income, Uni location etc. some top up is usually required, in the region of £3K to £7 K pa . Often in the form of paying directly for accommodation so the student does not blow it all in the first term !

Otherwise due to the time frame involved, the usual recommendation is for a 100% equity global tracker. It will be a bit volatile, but should grow over the long time period. Some ideas are
Fidelity World Index ( fund)
HSBC FTSE All World ( fund) 
Vanguard FTSE All World ( ETF) 

For an investment platform, Fidelity is usually recommended for JISA's as there are no charges (and all the above are available on that platform) .

MX5huggy

Unless you are using all your own ISA allowances every year (£20k each). Consider investing in your own name. Junior ISA’s are great until you want the money before they are 18, or then realise they can spend the money on whatever they like when 18.

Exodi

MX5huggy said:

Unless you are using all your own ISA allowances every year (£20k each). Consider investing in your own name. Junior ISA’s are great until you want the money before they are 18, or then realise they can spend the money on whatever they like when 18.

As in previous threads, agree with MX5huggy on this -

Exodi said:
Judge as you all like, but when I have children I intend to just make a specific all-world investment in my S&S ISA which I'd consider theirs. Far too much drama to hear of parents having an emergency (car/boiler breaking, roof leaking, etc), not having the funds to rectify it, then discovering that they can't touch the money they deposited 10 minutes ago because their 18 month old legally owns it.

They then typically come to this forum to ask for advice and get lambasted for attempting to 'steal their kids money' - even though it's obvious most parents would replace it.

Then you have the later situation, wherein you expect the child to turn 18 and put the money towards driving lessons or to help save for a deposit on a house - where in reality it ends up getting spent on endless takeaways, skins on the current 'game of the month', energy drinks and nights out every weekend. Again, a situation you would have limited control over. At least if you always retain ownership of the money, you can control what it gets spent on... 18 year olds aren't renowned for their financial responsibility...

Malthusian

Judge as you all like, but when I have children I intend to just make a specific all-world investment in my S&S ISA which I'd consider theirs. 

I agree with you (and MXHuggy). Junior ISAs make little sense if the parent(s) don't have enough money to max their own allowances.
There is only one single tax advantage which is that the kids immediately have the money in the ISA wrapper at 18, whereas if you hand over a large lump sum that you've been keeping in your own name, they can only shift £20k into an ISA per year. But that is very weak, especially for money they are likely to spend in their youth.

Far too much drama to hear of parents having an emergency (car/boiler breaking, roof leaking, etc), not having the funds to rectify it, then discovering that they can't touch the money they deposited 10 minutes ago because their 18 month old legally owns it. They then typically come to this forum to ask for advice and get lambasted for attempting to 'steal their kids money' - even though it's obvious most parents would replace it.

If someone steals their kids' money because they can't manage their own finances, can't cover the kind of bread-and-butter one-off cost for which anyone with basic financial capability keeps a rainy day fund (and can't even get credit from anywhere), they might say they'll replace it, but it's pretty obvious it's not going to happen.

Part of the reason childs' savings accounts exist is to protect the children's money from this kind of scenario.

@OP: I echo Albermarle's advice to not pay voluntary tax on their behalf by using your (or their) money towards uni costs when "student loans" are available. If they want to pay voluntary tax they can make that decision themselves when they are earning money in their own right. 

Exodi

Malthusian said:
If someone steals their kids' money because they can't manage their own finances, can't cover the kind of bread-and-butter one-off cost for which anyone with basic financial capability keeps a rainy day fund (and can't even get credit from anywhere), they might say they'll replace it, but it's pretty obvious it's not going to happen.

Part of the reason childs' savings accounts exist is to protect the children's money from this kind of scenario.

Perhaps not but in that situation it is only the kids money (by right) by virtue of the parent putting it into a specific financial product. The sort of parent we are discussing (that do not have basic financial capability), were unlikely to have put it into the childrens account for the protection against themselves. It's most likely they did it simply on the view that childs money = childs account. Perhaps if this hypothetical parent knew the full ramifications of this decision, they would not have done so.

I don't know if this is the reason childs' savings account exist, as parents always remain free to retain ownership of the money if they so desire - nothing forces them to put money in a childs name. My view is that childs accounts are just a marketing strategy (propped up with higher interest rates) to onboard people while they are young, hoping they stay with the bank as adults.

My personal reasons for doing so aren't about rainy day funds, it's more the second part of my post about frivolous spending. A few years ago I watched my brothers and sisters (I come from a large family with a large variance in age) one by one put it all up the wall when they turned 18 (though we're talking about a couple of grand). Obviously a part of this is parenting, but 18 year olds also aren't renowned for their financial savviness. It is a completely unnessary to take this risk.

CheekyMikey

We did a uni fund for both our boys when born and when they eventually went to uni a few years ago it was worth £50k… we chopped and changed the funds in it a few times, for many years it was all with Perpetual and Woodford (thankfully moved out wheel the first red flags started fluttering). Our intentions had originally been to pay all their fees and living costs, but obviously the whole system changed over 18 years which meant the best option was for them to take as much from student loans as they could get. Their fees are paid for but the maintenance grant barely covers the exorbitant accommodation costs, so we have used the £50k uni fund to basically give each about £3500 a year to live on. In 15 years time, who knows how the university system will have changed, but a good Vanguard fund would be hard to beat to put your regular payments in. Personally I like their FTSE World excluding UK fund as I don’t have much faith in the UK ongoing…

Exodi

CheekyMikey said:

...Personally I like their FTSE World excluding UK fund as I don’t have much faith in the UK ongoing…

I didn't think Vanguard did a FTSE world ex UK but upon checking I see you're talking about the developed world fund ex uk.

You're obviously missing out on the UK (I'm also cynical here, and UK only constitues about 4% of the FTSE All-World), but the fund also notably misses emerging markets like China, India & Taiwan. This very well may be intentional, but if not you could remedy this by allocating a small amount of your portfolio to an emerging markets fund that gives you this exposure (e.g. https://www.vanguardinvestor.co.uk/investments/vanguard-global-emerging-markets-gbp-accumulation-shares/overview) - note the OCF.

Alternatively, I think the two best 'one size fits all outfits' on Vanguard are the FTSE Global All Cap Index or VWRL.

Apologies if you deliberately excluded these markets!

Albermarle

My personal reasons for doing so aren't about rainy day funds, it's more the second part of my post about frivolous spending. A few years ago I watched my brothers and sisters (I come from a large family with a large variance in age) one by one put it all up the wall when they turned 18 (though we're talking about a couple of grand). Obviously a part of this is parenting, but 18 year olds also aren't renowned for their financial savviness. It is a completely unnessary to take this risk.

Although it can be argued that blowing some money at that sort of age is normal, and at the same time learning a good lesson early - once it is spent it is gone. Ideally not too expensive a lesson with 20 grand though !

CheekyMikey

Exodi said:

CheekyMikey said:

...Personally I like their FTSE World excluding UK fund as I don’t have much faith in the UK ongoing…

I didn't think Vanguard did a FTSE world ex UK but upon checking I see you're talking about the developed world fund ex uk.

You're obviously missing out on the UK (I'm also cynical here, and UK only constitues about 4% of the FTSE All-World), but the fund also notably misses emerging markets like China, India & Taiwan. This very well may be intentional, but if not you could remedy this by allocating a small amount of your portfolio to an emerging markets fund that gives you this exposure (e.g. https://www.vanguardinvestor.co.uk/investments/vanguard-global-emerging-markets-gbp-accumulation-shares/overview) - note the OCF.

Alternatively, I think the two best 'one size fits all outfits' on Vanguard are the FTSE Global All Cap Index or VWRL.

Apologies if you deliberately excluded these markets!

Yes, apologies, I meant developed world fund, which I think is a reasonable, less volatile fund. I have a separate emerging markets fund so I can better manage my exposure to those areas depending on market conditions. But for what the op wants, a buy and ignore global coverage over 15 years, then your suggestions are probably better