A Guide to Financial Planning for Parents
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham.
All parents want the best for their children. Not only do we want them to have great friendships, a loving family environment and good education, but it’s also natural to want to provide financial help as well. At Castlegate, our financial advisers here in Grantham recognise that this is quite a large, important topic. For instance, “financial help” might involve helping your children when they are older with the costs of a private education, university, getting married or a first home. More broadly, however, it can refer to the financial plan you exercise as your children grow up, helping to ensure a stable financial environment and security should anything happen to you.
In this short guide, our advisers will be sharing some tips for parents to consider incorporating into their financial plan for their children. We hope you find this content helpful, and invite you to get in touch to find out more or to discuss your own financial plan with a member of our team:
Providing financial stability & security
It’s very natural to look years ahead and to want to prepare financial help for some of your child’s possible future costs (e.g. a house deposit). However, as they are growing up it is important to ensure that your financial plan protects your dependents should you no longer be able to work (due to ill health), or even pass on prematurely.
One of the best steps to consider here is to think about guardianship and wills. This is an uncomfortable conversation, but it’s important to discuss what would happen to your child should both of you tragically die. Would one of your siblings or parents take them in, for instance? Are they aware of your plans and have they consented to them?
Whatever you decide, it’s also vital that you consider making a legally-binding will, which would ensure your assets are distributed to your children in accordance with your wishes. Failing to do so leaves your house and other assets subject to the UK’s intestacy rules, which might not handle your estate in the manner you would have wanted.
Beyond these two areas, it’s also a good idea to speak to your financial adviser about your protection plan. What would happen, for instance, if you had a serious accident and could no longer work to provide an income? Here, you might want to examine the role of policies such as income protection, critical illness cover and/or life insurance, which can help provide a much-needed lump sum or income to your family should an incident like this transpire.
These are all concrete, practical and great ways that you can account for your children within your financial plan. However, it’s also important to remember that your children will one day leave home and become financially responsible for themselves. What will their attitude to money and wealth look like? Can you help instill good financial values and habits in them now, in the formative years, which give them a better chance at handling money responsibly in later life (possibly also saving you from having to bail them out after a costly mistake)?
Providing a financial education to your children looks different to everyone, but it’s a good idea to think about what might be right in your family’s context. Perhaps you could teach them about the importance of budgeting over a family meal, or help nurture a habit of long-term saving by opening a Junior ISA for them. Opening their eyes to the power of compound interest, and how it can transform an investment sum over many decades, could also be transformative for them.
Practical help for when children leave home
Helping your children with future costs does bring in some important debates. For instance, some might argue that simply giving a child tens of thousands of pounds (with no strings attached) to spend on university or a house deposit could foster a sense of entitlement. Others might say that previous generations in the UK have had things far better than the younger people now growing up (e.g. free university fees and booming home values), so it’s only fair to give the next generation a bit of a “leg up”.
This is obviously a personal decision for each parent to decide. However, if you do decide that you might want to help your child with the future costs of a house deposit or university, then planning ahead can reduce costs and increase wealth growth potential.
For instance, suppose you committed £4,000 into your child’s Junior ISA shortly after they were born. At an annual growth rate of 3.6%, this figure could grow to £7,560.24 by the time they are 18. If you committed £1,000 per year until they reached the age of 18, however, then the total could reach £25,202.39; a figure which could go a long way towards a house deposit.
One final idea (which may or may not be right for you) is to consider bringing your children into discussions about the family finances, once they are a bit older. A £30,000 annual salary might sound like a lot to a child when they first hear about it, but quite often it brings them a lot of perspective when you explain to them how much the household’s monthly expenses are.
If you are interested in discussing your own financial plan or family protection with us, please get in touch to arrange a no-commitment initial financial consultation at our expense: