Invest for your child’s future – case study

Rachel, 38, is married with one daughter, Sophie, who has just celebrated her third birthday. Although Sophie is very young, Rachel is worried about how the cost of university and soaring house prices could affect Sophie’s future. She wants to do everything she can to help Sophie graduate from university debt-free and get a foot onto the property ladder.

Rachel and her partner are already juggling their everyday living expenses with saving for retirement, so they decide to speak to a financial adviser about how they can save for Sophie’s future without neglecting their other goals. The adviser reviews their finances as a couple and helps them carry out a careful budgeting exercise.

Rachel realises she can afford to set aside £300 a month for Sophie’s future. Rachel had originally considered opening a children’s savings account, but her adviser explains that investing would be a better option. Investing will offer the opportunity for greater long-term growth, particularly as interest rates are currently very low. Sophie won’t need the money for 15 years, which should offer plenty of time to recover from any stock market downturns. To separate Sophie’s money from her own, the adviser recommends that Rachel opens a Junior ISA on Sophie’s behalf. Sophie’s investments will be shielded from tax and she won’t be able to access the money until age 18, when her Junior ISA will convert to an adult ISA.

Fast forward 15 years and Sophie now has a pot of money worth over £80,000, assuming annual investment growth of 5% a year after charges and before inflation. Sophie has decided to live at home during university and so draws around £12,000 a year to cover tuition fees, course materials and other expenditure. Sophie graduates at the end of her third year and, unlike many of her student friends, is completely debt-free. She still has a significant sum of money in her ISA, which she keeps invested, giving her the opportunity to one day put down a sizeable deposit on her first home. Thanks to her mother’s foresight and the support of a financial adviser, Sophie can look forward to her future with confidence.

The value of investments, and any income from them, can fall and you may get back less than you invested. Neither simulated nor actual past performance are reliable indicators of future performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy.