This content is for information and educational purposes only. It should not be taken as financial advice or investment advice. To receive tailored, regulated financial advice regarding your affairs please consult us here at Hanson Financial Services (financial advice in Liverpool).
Your whole world changes when you have children. Suddenly, you are responsible for someone very small, dependent and trusting of you. Their immediate needs are food, health, shelter, love and other physical and emotional demands. Yet in the background also lies their financial future and a host of questions. What happens to them if you die prematurely? Should you be saving on their behalf to help them with future costs such as education, weddings and housing? How can you ensure a meaningful inheritance for them one day?
If you are thinking about having children, how will you even afford them and what impact might it have on your financial future? These are very important questions. In this article, our financial planning team at Hanson Financial Services offers some reflections to help both prospective and current parents. We hope you find this content useful for your financial plan.
Affording children
This may seem like an insensitive question. After all, if you want children why should you have them? Yet children do come with a high price tag which you will need to pick up. For a couple, the basic cost of raising a child to age 18 is £71,611 for a couple and £97,862 for a lone parent. Not only will there be direct costs for clothing, baby products and schooling but there is likely to be an impact on your ability to earn and save – as you and/or your partner step back from paid work to raise them. For low income families, the state may help a bit with these costs. For most, however, you will need to shoulder the financial responsibility yourself. Take time, therefore, to think about the best time to start a family from all perspectives – personal and financial.
Wills & protection
Once you have a child, you will need to think about their financial provision in case the worst happens to you and/or your spouse (if married). A good start is to consider life insurance, which pays out a lump sum if you die within the policy terms. If you are a homeowner, for instance, this can help repay the mortgage and takes a lot of financial pressure off your surviving loved ones to navigate their new path together. You should also consider writing a will to express how you want your estate to be distributed to your family. Be aware that, without a will, your possessions and money will be subject to the UK’s intestacy rules. These may not distribute your wealth as you would like or in the most efficient manner.
Savings & investments
Many people want to build a pot of money for their child to give them a “leg up” when they leave home and go to university, get married or want to buy a property. This is a great idea, especially if you start early. Over an 18-year period, for instance, a child’s investment account could grow significantly through the power of compound interest. One option might be to consider setting up a Junior ISA for your child, where you can contribute up to £9,000 per year until he/she reaches age 18 (from which point they are responsible for it). This account will generate tax-free interest and capital gains, helping to boost growth.
Leaving a legacy
If you own a house, investments and other assets which, together, exceed £325,000 in value then your estate may be subject to inheritance tax (IHT) when you die. Any money taken by the state is wealth not passed to your children, so it is worthwhile to craft an estate plan to mitigate any unnecessary IHT. Here, a financial planner can help you craft a good strategy. One idea might be to put certain assets into a trust, which not only can lower the IHT exposure but also help you control when/how your estate passes to your son or daughter (e.g. when they turn 18).
Financial education
You can only do so much yourself to improve your child’s financial prospects. Eventually, they will earn money themselves and take on the responsibility. Here, parents need to recognise the vital role they play in nurturing good financial values and habits in their children – especially in the formative years. There are lots of ideas that you can consider to help with their financial education. One might be to share your household earnings and expenditure when they are old enough, to help them understand that money is a scarce resource that needs to be managed carefully. Practicing good financial management yourself is also essential, since your children watch everything you do and are very impressionable. If they see you being careful with money and spending it wisely, they are likely to want to do the same. Finally, gradually introduce some financial responsibility to your son/daughter. For some, this may include providing an allowance and asking for a contribution – to start introducing them to the idea of paying bills and taxes. For others, it may be encouraging children to get a Saturday/Sunday job.
Conclusion & invitation
Are you interested in talking to a financial adviser about your pension and investment planning needs? We’d love to assist you here at Hanson Financial Services.
Please contact us to arrange a consultation with our team – free and without obligation – to gain more clarity and peace of mind over your financial plan.
You can call us on:
Liverpool Office: 0151 708 7616
Manchester Office: 0161 401 0991
Chester Office: 01244 960 039
Or email via: [email protected]
