Financial turning points: the key decisions we all face
At certain times we reach a crossroads. Here’s how to lead your family down the path to prosperity
Going to university
How and where we study can have a huge impact on short-term and long-term finances – and these days it’s likely to be a decision that involves the whole family. School-leavers who go straight into employment may well be better off at the age of 25, at which point graduates will still be paying back loans of up to £50,000 for tuition and living costs. However, graduate salaries are, on average, substantially higher than those for non-graduates with a similar educational background. According to recent research, having a degree adds £168,000 to lifetime earnings for men and £252,000 for women. Contributions from parents, grandparents and other relatives can help reduce the initial debt taken on and therefore cut interest payments, possibly by tens of thousands of pounds, making university an even smarter financial choice.
Although finances are unlikely to be at the forefront of most newlyweds’s minds when they decide to get married, walking down the aisle can have a profound effect on their bank balance. Aside from the cost of the day itself – the average British couple (or their parents) now spend £22,000 on their wedding and honeymoon – there are other considerations too. Married life may lead to some efficiencies in rent and subsistence costs compared with keeping up two single-person households, but the cost of setting up a new home can be substantial. Bear in mind that if you have made a will before you marry you will need to update it afterwards to reflect your new status. Later in life, being married confers some financial advantages: you may have improved pension rights, and you will be able to inherit from your spouse without incurring inheritance tax.
Buying a house
Securing a home is the biggest financial commitment in most people’s lives. Taking on an unaffordable mortgage or buying just before house prices take a dive can leave people struggling to make ends meet or, in the worst cases, end up with them losing their homes, but the vast majority find that owning property helps them build a secure and prosperous future. In the current climate, with rents high and interest rates low, the incentive to buy is stronger than ever. The only obstacle, especially for first-time buyers, is rising prices.
Funding your children’s education
The cost of raising a child to the age of 21 is now £220,000, according to the insurance company LV=, and that rises to £415,000 for children sent to private boarding schools. That’s a substantial rise compared with a decade ago, driven in part by the growing cost of childcare and rising tuition fees. Starting to save early and making the most of compound interest will help you to meet the expense with the minimum of pain. Specialist financial products are available but ISAs are a good place to start, especially after the savings limits were increased in last month’s Budget. Junior ISAs, which do not mature until your child’s 18th birthday, could be used to fund university tuition or living costs.
Preparing for old age
The cost of elderly care can be a great worry, even – or indeed especially – for those with substantial assets. That’s because state support for care home costs is means tested, meaning that savings have to be drained and houses sold to pay the bills. Changes coming in 2016 will cap individual contributions and increase the number of people who qualify for state aid, although most homeowners will still have to pay their own bills. Nevertheless, the new rules have created enough certainty around costs that insurance companies are starting to offer policies that will pay out if you require care. Some people may shy away from paying premiums for a product they may not use and instead invest the money themselves, but others may prefer the certainty of knowing that costs will be met.
Passing on your wealth
After a lifetime of investing to provide for yourself and your family, there are few more rewarding tasks than deciding what good your wealth can do after you have gone. Making a will is key to ensuring that your intentions are carried out as you wish – and to spare your family the pain of unnecessary complications after your death. If you wish to play a more active role, setting up a trust fund will let you retain some control over bequests to grandchildren or other young relatives That way you can be sure that they receive their inheritance only when they are ready to pick up the mantle and start building a portfolio for their own families.
More from the Family Matters series
- Financial turning points: the key decisions we all face
- Invest in yourself, invest in your family
- How to give your children good money sense
- Education: the real return on investment
- How to help your children onto the housing ladder
- Turn the family holiday into a family fortune
- How to fund care for an elderly parent – or your own old age
- How to provide for the next generation
Click here for more information on planning for your family's future, from Lloyds Bank Private Banking