Don't bet on a lottery win to save your finances
Is winning the lotto the backbone of your financial planning?
Don't depend on it. Mathematicians from the University of Sussex have just worked out that the odds of winning the National Lottery jackpot are 45 million to one.
Unfortunately, reliance on such far-fetched windfall events features prominently in the financial budgeting of the latest generation of students, and their parents.
Recent research from Aviva covering over 3,000 students and parents showed that 17 per cent of students are hoping for a lucky lotto ticket to meet the cost of college, 18 per cent are hoping for a family inheritance, and 30 per cent are counting on a financial gift.
It's no wonder: tuition fees alone have tripled in the last five years, from £3,000 to £9,250 per year. The average student now graduates with over £44,000 of debt, a millstone around their necks that could take 24 years to repay.
Which is where we parents come in, and that awful word strikes terror into our hearts: “Bomad.”
The Bank of Mum and Dad.
How much do you need to save, in order to help your child through college? The average parent hands out £287 per month to a daughter or son in third level education. However, that's just a contribution: only one parent in 7 has enough to pay all university costs for their student.
This is not an optimal situation. It leaves 43 per cent of our children working a job during term time. The parents of a third of those felt this distracted them from their studies.
These challenges, which force students to hope for a lotto win or one of the other windfall events mentioned above, has given the millennial generation the nickname of ‘Gen O', short for Generation Ostrich and meaning they bury their head in the sand, rather than taking control of their planning and spending habits.
Nearly half of millennials say they hope to buy a house or flat before they are 35. It may be a questionable ambition, given the massive burden of debt they will carry out the university gates, along with their degree.
So how can we help most effectively? If you wish to help your child get a third-level qualification, then planning ahead is the key.
It's also worth noting that we are now waiting longer, before starting a family. Remember that phrase ‘the sandwich generation?' If we are parents who waited until our late 30s before having our first child, we can find ourselves supporting a student through university, while sandwiched between them and the older generation, as we support our parents at the same time. Meanwhile we are trying to stay on track with saving for our own elderly years.
Aviva's head of Savings and Retirement, Alastair McQueen, summed it up: “Saving is a great habit to get into, and a parent who can afford to put aside an extra £112 a month - less than £4 a day - from the day their child is born to their 18th birthday, could generate £35,706 over this period. This could be a huge financial lifeline for children starting higher education.”
Taking financial advice and discussing an Isa or one of the other savings products suitable for preparing for your child's education makes sense, and the sooner you get it set up, the better. Even if they decide not to go on to college, the money can help them put a deposit on their first home.
And even if you can't afford over £100 a month for them, then save what you can. Take a leaf out of the supermarket's book: 'Every Little Helps'!
Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 7188 6005. For further information go to ‘Kennedy Independent Financial Advice Ltd' on Facebook.