How much do you really love your children?

Selection_069

Children are expensive. We hear this all the time from any parent of any child. There is no getting away from the fact that if you start a family your entire life changes in almost every way. For many, their uppermost thoughts are the facts that their social life will transform to something new; there will be sleepless nights, whilst changing diapers and feeding become seemingly 24/7 tasks which quickly turn into tiresome chores. Then there is the constant care a family require from toddler stage when they need help to walk, through the first school, first night away, secondary school, first boyfriend/girlfriend, leaving home for university or just to be independent.

During the earlier years parents seem to concentrate on the near term when looking forward, for perhaps no more than a year or two. They lose sight of the far distance and the possible serious difficulties they may face jointly with their children in the future.

Some recent newspaper articles have mentioned the cost of tertiary education for children of expats. There were also questions and comments about other issues children face and where parents often find themselves helpless. These include getting onto the property ladder or setting up home and having a family of their own. This has created some questions on how to best forward plan for university costs as well as these other issues.

Most parents want the best there is for their children. If they have the means they will often assist their children as much as they can, even when it is done in a sensible way and the children are very appreciative. We all know that the harder we work for something of our own the more we sincerely appreciate it. Thus when children of the modern parent participate jointly with their parents in plans for the future they surely learn how to appreciate and value this.

… Many parents do not think as far as tertiary education when the children are young and often allow the children to miss the boat in that they simply do not have the means to contribute to the costs of university when the time comes. But if you start early it is amazing just how much you can contribute to this important phase of their lives.

The cost of education is climbing higher all the time with inflation. But did you know that these costs are generally inflating at accelerated rates compared with the general cost of living? Currently education costs are rising between 7% and 10% per annum.

Today typical tertiary education costs for students in Europe or USA will total around $35,000 per annum including basic living costs. Thus with inflation when your child of say one year gets to the point where he or she will start university, in seventeen years’ time, the costs will be somewhere above $115,000 per year.
By saving around $1,250 per month, or $15,000 pa you can achieve enough money to cover the costs of a four year university education programme for your one year old. This can be completed via a structured savings plan which will give you access to global financial markets whilst allowing you to benefit from dollar cost averaging as well as compound growth. These two factors combined can bring you superior returns on regular contribution savings plans.

However, there are pitfalls to these plans so if you decide to embark on one carefully look at the terms and conditions to make sure they suit you and your own circumstances. If any adviser tells you that after an initial period you can “do anything you like with the proceeds” the chances are you are getting the wrong advice. Used properly these plans work very well.

There are other dilemmas parents think of and these include not only succession planning when they would prefer to leave a legacy for their children, but also such important aspects of a young adult life like the purchasing of a property. This is always a struggle for many young people but these days it seems to have been made even worse since the 2008 financial crash.

Institutes which lend against property, in order for young people to mortgage and purchase their home, are applying very stringent rules these days. This has created a situation where the proportion of finance available, the loan to value ratio (LTV), has become lower against the now ever increasing capital cost of purchasing a property.

Looking at a practical situation the purchase price of property is now as much as five to seven times the annual salary of a young career person. Thirty years ago the average was somewhere around three times salary. Today the amount required as a deposit is usually 25%-30% of the purchase price, compared with around 10% thirty years ago. This creates a dilemma for youngsters as they struggle to save sufficient funds to afford the deposit to buy their own home.
As a parent it would be only natural for you to want to assist your child in attaining this goal. Many will want repayment of a ‘loan’ they make to their children but this will certainly help get them onto the property ladder.
If this were to happen to your children do you have the means by which you could assist? If you start to think about this carefully when your children are young you may be in a position where you could ensure you can help them. Of course for those with larger families this can be multiplied into a very daunting task.

Many expats have the relative luxury of being able to plan provisions in more than one way. A different view of property looks at using property as an asset for you as the parent to assist your children to achieve tertiary education and create a succession plan for them when you pass away. A possible downside to this solution is the capital required from you to set up an initial property purchase. However, once you have done this it is usually plain sailing.

If you are able to afford this solution and create a structured savings plan as well you have the best of both worlds as the savings plan will give you far better access to liquidity once it reaches or gets nearer to maturity.

By starting early you can assist your children in more ways than you perhaps have imagined. This could enable them to have a better life than they would have and they can learn to appreciate this as they can participate along with the plans so that they feel part of the overall strategy.

As the children become older the problem just gets bigger and more expensive to solve. As a responsible loving parent don’t you have a duty to start dealing with this now?

Have you started a life plan for your child or are you still drifting along in blissful ignorance?

Questions to the author can be directed to PFS International on +7 495 660 8887 or email to Russia@fsplatinum.com

P.F.S. International’s office
in Moscow is at Office 1909, Imperia Tower, Presnenskaya Naberezhnaya 6,
Moscow City International Business Centre, Moscow 123317