Author Topic: Is this the right idea?  (Read 2030 times)

Zola.

  • Bristles
  • ***
  • Posts: 369
  • Location: UK
  • Let's do this.
Is this the right idea?
« on: August 01, 2018, 05:28:43 AM »
Long story short - My wife and I had a little boy very recently.

I have just setup at Junior S&S ISA direct with Vanguard and went for LifeStrategy 100% Equities. We will be using the £80 child benefit money and £20 of our own to start him off each month.

Should we also start saving some money in cash for him? Or do you think all in the stock market?

Long term plan is to build it up more aggresively over time to cover things like University, Wedding & House deposit.

poppydog

  • Stubble
  • **
  • Posts: 135
  • Location: Scotland, UK
Re: Is this the right idea?
« Reply #1 on: August 01, 2018, 11:56:07 AM »
Hi Zola

We became grandparents earlier this year and I did exactly what you did - set up a junior Isa with Vanguard for £100 per month, into the Lifestrategy 100 fund for our grandson.

Iíll consider de-risking it during the run up to him becoming 18; perhaps switching to LS80 when heís 14 say, then LS60 when heís 16.  I wonít go lower than 60% equities though without good reason.

Good luck and congratulations!

PD

frugledoc

  • Pencil Stache
  • ****
  • Posts: 580
Re: Is this the right idea?
« Reply #2 on: August 01, 2018, 04:39:22 PM »
Long story short - My wife and I had a little boy very recently.

I have just setup at Junior S&S ISA direct with Vanguard and went for LifeStrategy 100% Equities. We will be using the £80 child benefit money and £20 of our own to start him off each month.

Should we also start saving some money in cash for him? Or do you think all in the stock market?

Long term plan is to build it up more aggresively over time to cover things like University, Wedding & House deposit.

Are you filling your own ISAs first?

If not, personally I would recommend aiming for that first, and then give your kids funds later as you see fit.

Zola.

  • Bristles
  • ***
  • Posts: 369
  • Location: UK
  • Let's do this.
Re: Is this the right idea?
« Reply #3 on: August 02, 2018, 09:46:06 AM »
Thanks PD!

Frugledoc, nope not even close! That is a good idea but its done now, and I supposed this gives our son a dedicated focus for his future from the outset.

frugledoc

  • Pencil Stache
  • ****
  • Posts: 580
Re: Is this the right idea?
« Reply #4 on: August 02, 2018, 11:26:11 AM »
Thanks PD!

Frugledoc, nope not even close! That is a good idea but its done now, and I supposed this gives our son a dedicated focus for his future from the outset.

Itís a nice idea, but when he turns 18 he can spend it in anything he wants, even if that is 2 week booze fest for him and his friends in Ibiza

Zola.

  • Bristles
  • ***
  • Posts: 369
  • Location: UK
  • Let's do this.
Re: Is this the right idea?
« Reply #5 on: August 03, 2018, 02:02:31 AM »
To a degree - my folks setup the same thing for me when I was little (only in a cash account). I was told from early that the money was only for help to a house deposit or wedding when the time was right, so I always knew it was siphoned off for that, effectively. Was never an issue, and I was a brat child at times :)


shelivesthedream

  • Magnum Stache
  • ******
  • Posts: 4305
  • Location: London, UK
Re: Is this the right idea?
« Reply #6 on: August 03, 2018, 02:36:43 AM »
This is exactly what we are doing except it is only for gift money at the moment, not any of ours. We can always give him some of "our" savings in the future if we want so we prefer to max out our savings first as really they are for the benefit of the whole family.

Zola.

  • Bristles
  • ***
  • Posts: 369
  • Location: UK
  • Let's do this.
Re: Is this the right idea?
« Reply #7 on: August 06, 2018, 05:01:34 AM »
This is exactly what we are doing except it is only for gift money at the moment, not any of ours. We can always give him some of "our" savings in the future if we want so we prefer to max out our savings first as really they are for the benefit of the whole family.

Happy days, glad some of us are on the same path :)

How old is your kid SLTD?

shelivesthedream

  • Magnum Stache
  • ******
  • Posts: 4305
  • Location: London, UK
Re: Is this the right idea?
« Reply #8 on: August 06, 2018, 10:12:05 AM »
This is exactly what we are doing except it is only for gift money at the moment, not any of ours. We can always give him some of "our" savings in the future if we want so we prefer to max out our savings first as really they are for the benefit of the whole family.

Happy days, glad some of us are on the same path :)

How old is your kid SLTD?

Three and a half months.

Manchester

  • Stubble
  • **
  • Posts: 140
Re: Is this the right idea?
« Reply #9 on: August 07, 2018, 04:07:50 AM »
Long story short - My wife and I had a little boy very recently.

I have just setup at Junior S&S ISA direct with Vanguard and went for LifeStrategy 100% Equities. We will be using the £80 child benefit money and £20 of our own to start him off each month.

Should we also start saving some money in cash for him? Or do you think all in the stock market?

Long term plan is to build it up more aggresively over time to cover things like University, Wedding & House deposit.

I think that's a very generous idea.  As someone else has pointed out it perhaps makes more sense to top up your own accounts before any of your offspring.  HOWEVER, you need to define what is more important in your life.  Is FIREing a few months/years earlier a better option than giving your child a financial head start?  That's a question for you to consider personally. 

If you're asking for advice on investment strategy, you can't really go wrong with Vanguard L/S 100.   I asked for similar advice earlier in the year and that was the option that was recommended.

PhilB

  • Pencil Stache
  • ****
  • Posts: 540
Re: Is this the right idea?
« Reply #10 on: August 07, 2018, 04:30:41 AM »
The other consideration is whether there are any savings vehicles available to you that beat what is available for the kids.  We had our kids late so will both be retired and over 55 by the time our eldest turns 18 so for us it's a no-brainer to stick money into our pensions then gift it to the kids later (probably by funding LISAs from 18).  This probably wouldn't make sense for someone who's just had kids in their twenties, but there may be other options such as employee share schemes, LISAs if you haven't bought a house yet, etc that would still give an advantage.

londonstache

  • 5 O'Clock Shadow
  • *
  • Posts: 91
Re: Is this the right idea?
« Reply #11 on: August 15, 2018, 02:26:00 AM »
Long story short - My wife and I had a little boy very recently.

I have just setup at Junior S&S ISA direct with Vanguard and went for LifeStrategy 100% Equities. We will be using the £80 child benefit money and £20 of our own to start him off each month.

Should we also start saving some money in cash for him? Or do you think all in the stock market?

Long term plan is to build it up more aggresively over time to cover things like University, Wedding & House deposit.

Edited to say: Congratulations!! Was so excited about the maths that I forgot to congratulate you on the new arrival.

I wouldn't want to save any as cash at this moment in time. Thinking on the time horizons, you could be looking at the following for life events (based on my millennial mates):

  • University - 18 (19 if a gap year is fancied)
  • House - 25 - I'm making a specific downward modification here to allow for deposit being in place, but the earning multiple would still be needed for a mortgage
  • Wedding - 30?

Based on this I would want to keep 100% in equities at least until 14/15 years old, then start to project what is required for each life stage. You are potentially looking at a drawdown in 3 stages over a 12 year period, so factor in that you presumably want the growth for the house deposit (c. 7 years out) and wedding (c. 12 years out) when you start paying for university fees.
I'd personally want the balance for these future events in equities until 2-3 years out, but depends on your risk tolerance, which given the relative importance of these life events might be slightly lower.

I definitely wouldn't provision any as cash yet and suggest that is left for at least 12-15 years.

Playing with Fire UK

  • Handlebar Stache
  • *****
  • Posts: 2428
Re: Is this the right idea?
« Reply #12 on: August 18, 2018, 02:06:55 AM »
I'd seriously think over whether you want to pay for university. The majority of people who take student loans never pay them all back, so by paying for university upfront you are just giving money to the government.

You might decide that your child being "debt-free" is worth it, or you might have an objection to the way the loans work, or even be certain that your child (congratulations!) is going to be one of the few to pay their loan back. But think about it first.

shelivesthedream

  • Magnum Stache
  • ******
  • Posts: 4305
  • Location: London, UK
Re: Is this the right idea?
« Reply #13 on: August 18, 2018, 03:24:28 AM »
I'd seriously think over whether you want to pay for university. The majority of people who take student loans never pay them all back, so by paying for university upfront you are just giving money to the government.

You might decide that your child being "debt-free" is worth it, or you might have an objection to the way the loans work, or even be certain that your child (congratulations!) is going to be one of the few to pay their loan back. But think about it first.
My parents were prepared to pay for university. As in, they had the cash sat in an account. What we did was they gave me regular living expenses payments and then I took out tuition fee loans and we let the cash for that sit in the account for three years. When I graduated, they said you can either write a big cheque to the Student Loan Company or keep the cash and keep the loans. I did the latter and used it to pay for a Postgraduate Diploma in a different field and the rest became the first part of my stash!

Put your own oxygen mask on first, but after that I think it's commendable to want to have the means to pay for university, but I wouldn't recommend actually doing it - if you see what I mean!

Zola.

  • Bristles
  • ***
  • Posts: 369
  • Location: UK
  • Let's do this.
Re: Is this the right idea?
« Reply #14 on: August 20, 2018, 07:50:50 AM »
Interesting thoughts, thanks!

My parent very kindly paid my university fees, I took out my own student loans for spending money etc.... I have only about 3k left on student loans which isn't too bad at all.

I would want to do something similar for my kid, but the house deposit and helping out their wedding (all being well!), would be  key.


Playing with Fire UK

  • Handlebar Stache
  • *****
  • Posts: 2428
Re: Is this the right idea?
« Reply #15 on: August 24, 2018, 01:50:05 AM »
I'd seriously think over whether you want to pay for university. The majority of people who take student loans never pay them all back, so by paying for university upfront you are just giving money to the government.

You might decide that your child being "debt-free" is worth it, or you might have an objection to the way the loans work, or even be certain that your child (congratulations!) is going to be one of the few to pay their loan back. But think about it first.
My parents were prepared to pay for university. As in, they had the cash sat in an account. What we did was they gave me regular living expenses payments and then I took out tuition fee loans and we let the cash for that sit in the account for three years. When I graduated, they said you can either write a big cheque to the Student Loan Company or keep the cash and keep the loans. I did the latter and used it to pay for a Postgraduate Diploma in a different field and the rest became the first part of my stash!

Put your own oxygen mask on first, but after that I think it's commendable to want to have the means to pay for university, but I wouldn't recommend actually doing it - if you see what I mean!

I like this approach SLTD.

I get the impulse to support a child through university, but it seems inefficient to me to pay anywhere up to £50k upfront to save a child paying back an average of £10k over the decades (I recall these numbers from an article, I haven't validated them, but the  majority of students won't pay back anything close to what they borrow).

I'm on a rant about this because my grandmother had a smarmy equity release person nearly convince her that it was a great idea to remortgage her house to pay off all the grandkids' student loans. It would have been a really expensive way of giving money to the government.

It's totally different in the US - I see why people are keen to avoid children having student loan debt that actually does need to be paid back!

cerat0n1a

  • Handlebar Stache
  • *****
  • Posts: 1271
  • Location: England
Re: Is this the right idea?
« Reply #16 on: August 24, 2018, 02:48:18 AM »
This is pretty much the approach I've taken, but I'm still uneasy about it, because the government has already retrospectively changed the rules once. I really wouldn't put it past them to decide not to write off the loans in 30 years time, or to change the percentage or threshold where you start paying. There is some safety in numbers I guess - we'll get to the point where the majority of working age taxpayers have student debt.

My oldest son has a summer internship after his first year of university, and is earning over the repayment threshold (albeit only for 3 months). I'm fairly sure that if he goes straight into work after graduating, he'll end up paying back his loan. If he decides to do a PhD, it changes the numbers enough that he probably wouldn't ever repay. Crazy that you need to make these decisions as an 18 year old.

NearlyThere

  • Stubble
  • **
  • Posts: 219
Re: Is this the right idea?
« Reply #17 on: August 24, 2018, 06:23:54 AM »
Put your own oxygen mask on first

This sums up saving for a child perfectly.

We're doing exactly the same thing. Our SIPPs are on autopilot due to company contributions, so after our own ISAs, we max out our DDs. Then anything else goes into a taxable account. At 3 years old our DD has upwards of 8k in an LS 100% account.

We've not given much thought to distribution schedule at this stage tbh though I very much like the life events posted above. My wife certainly had this in the wedding section.

I've considered opening a junior sipp also. Including the hmrc contribution it would work out to approx 100k at age 18. Leaving that until 60 (assuming an increase in pension age) our DD would have a nest of 1.4m. Total contribution 15 x £2880 - £43,200. Compound interest at work. Interest rate assumed at 6% - http://monevator.com/compound-interest-calculator/

Playing with Fire UK

  • Handlebar Stache
  • *****
  • Posts: 2428
Re: Is this the right idea?
« Reply #18 on: August 27, 2018, 01:58:01 AM »
My oldest son has a summer internship after his first year of university, and is earning over the repayment threshold (albeit only for 3 months). I'm fairly sure that if he goes straight into work after graduating, he'll end up paying back his loan. If he decides to do a PhD, it changes the numbers enough that he probably wouldn't ever repay. Crazy that you need to make these decisions as an 18 year old.

Does he know that he can claim these back at the end of the tax year? [Or at least, I could on my plan.]