DIY Investor Magazine
/
December 2015
20
INVESTING FOR CHILDREN
AS ‘GENERATION Y’ FRONTS UP TO TOUGH TIMES
Average student debt now tops £40,000, wages among
the young have been squeezed, rents are high and
property ownership a pipe dream for most - with the
average deposit required reaching 82% of salary many
are turning to the Bank of Mum and Dad.
Faced with such exacting circumstances it is little
wonder that despite the reams of research suggesting
that earlier and longer is rarely the wrong strategy when
it comes to retirement planning, it is difficult for the
millennial’s to look so far ahead; as a result, a survey
jointly sponsored by BNY Mellon has recently, rather
bleakly, described them as ‘Generation Lost’.
The survey suggested that this group feel that they
have received little financial education at school,
university or from employers and financial companies
have scant interest in them because they have so little
to invest.
However, insurer Aviva points out that millennial’s will
make up 75% of the workforce in the UK by 2025 and if
they are not empowered and encouraged to provide for
their own retirement the additional burden on the State
could reach £60 billion every year as life expectancy
continues to rise – a sum equivalent to spending on
defence, higher education and policing.
With the average starting salary for a graduate in the
UK at £28,000 any accusations of profligacy can be
dismissed – the cost of everyday living now means that
this is a generation with very little disposable income.
Those born between 1980 and 2000 are the first generation to reach adulthood in the new millennium and have
been variously dubbed as Generation Y, Generation Selfie and iGen; they are generally portrayed as taking their
financial future seriously despite facing considerable challenges;
DIY Investor Magazine
considers how parents
may be able to give their children a financial head start.
Auto enrolment now means that all of Gen-Y in
employment will have at least some workplace pension
provision and there are steps they can take to improve
their circumstances. Debt invariably attracts higher
rates of interest than savings, so it makes sense to pay
down as much debt as possible and ensure that any
remaining is as cheap as possible.
Whilst indubitably difficult, buying a property rarely
makes less sense than renting and the soon-to-be-
launched Help to Buy ISA could help some on to the
ladder.
However, rather than just being there to offer a bail out
when the fruit of their loins hit the financial buffers, an
increasing number of parents are actively seeking to
provide a financial head start by planning for school
and university tuition fees and helping them get on the
property ladder.
A range of options exist for those saving for children,
primarily based around how much control the parent
wishes to have over the investment and at what age
they would like the resulting cash to be made available.
It is generally accepted that one of the most important
factors in the achievement of a successful outcome to
an investment strategy is to start early and to continue
investing for a long period of time and it is now more
important than ever that parents pull out all the stops to
give their children a financial leg up.
For the sake of comparison we consider options
that exist without the requirement to set up relatively
complex and often expensive trust arrangements where
it is necessary to take professional advice.
IT IS NOW MORE IMPORTANT THAN EVER THAT
PARENTS PULL OUT ALL THE STOPS TO GIVE THEIR
CHILDREN A FINANCIAL LEG UP
