Money matters

Most parents undoubtedly believe in the famous Benjamin Franklin quotation that "an investment in knowledge pays the best interest rate". However, they might be forgiven in the present economic climate for a bit of hesitation before stepping out on the road to providing private education for their offspring.

School fees appear to have been on an inexorable upward path for many years, rising at a rate much faster than either retail prices or wages. The outlook for both house prices and job security, probably the two strongest influences over long term financial commitments, has deteriorated rapidly and even cash in the bank has been considered neither safe nor rewarding in the past year.

Government statisticians began calculating an official index of education prices back in 1996; data from ONS (Office for National Statistics) reveal that since then they have risen by 139%. This equates to an annual average increase of fractionally less than 7%. Over the same period retail prices have risen by only 2.5% per annum and wages by 4%, so clearly school fees are becoming harder to fund out of income.

Recent studies have shown that the average fees for private education are now around £11,000 per annum, slightly less for day schools, but considerably more for boarding. Were such a cost to continue to escalate at the close to 7% rate shown in the past 13 years, the total outlay over a 15 year period covering the school programme from nursery through to A level would amount to about £275,000 per child. And this is before taking account of all those (not so) little extras that appear on termly accounts such as music lessons, school trips, uniforms and sports kit, or the university programme that might follow, with its onus of fees and accommodation costs. Multiply this total by two or three children and it can appear a daunting total even in buoyant times....

In today's economic environment there are many more furrows of worry on the average parental forehead than for many years. Over the years surveys have revealed that many parents have not funded their children's education explicitly from income but have relied upon the spiralling value of their rung on the housing ladder in order to remortgage and thereby release capital. With house prices having turned down sharply in the past 18 months and mortgage finance proving markedly less plentiful, this is not such an available option in the immediate future.

The other principal influence on the confidence (or not) of parents is the outlook for employment and job security. Here too the message is somewhat bleaker than for some time. The unemployment rate in London has risen by over 40% since the low of the cycle in summer 2007 (from 6.1% of the workforce to 8.5%) and shows no sign of abating in the short term. Another nail in the coffin comes from the rate of income tax for higher earners, which is scheduled to be increased from 40% to 50% with effect from the start of the next tax year, thereby tightening the screw even further on disposable income.

Now more than ever parents need access to good investment management and financial planning input, otherwise they will be echoing Herbert Hoover when he observed "blessed are the young, for they shall inherit the National Debt".

Find out how Rensburg Sheppards can help you by visiting www.rensburgsheppards.com

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