Issues to consider when planning private schooling

Charles Calkin, Partner, Financial Planner
Charles Calkin, partner and financial planning consultant

Charles Calkin, partner and financial planning consultant

Around 625,000 children – about one in 15 UK school children – go to fee-paying independent schools. The figure rises to more than one in five pupils over the age of 16.

The average independent school now costs around £14,000 a year – more in London – and over £32,000 a year on average for boarding schools.

Financial planning consultant Charles Calkin is a father of five whose children all went to private school. He warns: “Most of us will beggar ourselves to give our children roots and wings but it’s important to really understand the costs and issues of funding private education for your children. This is a major financial decision that will shape your whole life. If you get it wrong you could end up selling the house and having to take your children out of school. You and your spouse have to be united in this decision.”

Financial planning issues

  1. Expect costs to continue to rise

The biggest overhead for schools is teaching staff, whose pay tends to outstrip inflation. With our private schools attracting enormous interest from Russian oligarchs and the growing number of massively wealthy families in Asia these schools are under no pressure to keep fees down. Those planning to educate their children privately need to budget for fees that will continue to rise and to take account of the fact that we’re always sailing into an uncertain fiscal environment that may undermine your ability to pay fees.

  1. Don’t assume the costs end with fees

It’s easy to underestimate the extras. School uniforms will be more expensive. You’ll also come under enormous pressure to pay out for school trips, and these won’t be cheap – year upon year of hockey tours of Amsterdam, ski holidays in Switzerland all add to the bills. You have to remember the peer group you are putting them into as well. If they are mixing with the children of oligarchs it alters aspirations and perception of wealth. It will be important to keep your children grounded.

If you take the boarding option that will add to the fees and now you have to contend with £9,250 a year of university fees and maintenance too, so the pressure can really build.

  1. Consider if you need to use prep schools

Many people try to reduce costs with a hybrid approach using state junior schools and then private secondary schools. But competition can be tough for the best schools and you may need to think about preparatory school to prepare them for the entrance exams.

  1. Don’t forget location issues

Your choice of school may have a bearing on where you choose to live. If you want to avoid boarding fees you may need to live close to the school, which can be a major financial decision.

  1. Consider insurance and remember your will

Many people will be paying fees out of income, which means they will need to consider protecting that income with permanent health and critical illness insurance as well as life cover. You also need to think about what would happen if one of you did die. It is often overlooked but if the main earner is to continue working full time there may be the need for not only a nanny but also a housekeeper, which means insuring both partners. Have you guardians who will take care of your children and have you given them the wherewithal to continue the educational path you have chosen to minimise the disruption to your child at what will be an incredibly difficult time? Do your guardians have children at private school too? If not, will that create issues? You will need to make your decisions clear in a will and consider powers of attorney.

  1. Give careful thought to how grandparents contribute

Many clients can only send their children to private school because of help from grandparents, but that can create issues if not thought through carefully. It is, in effect, a way of passing wealth down the generations. If you help pay for one set of grandchildren to be educated privately, what about the others, and how do you compensate any of your children who are childless – they could end up being penalised twice.

If you are funding the education of grandchildren, consider how it is done – it may be sensible to make the gifts to the grandchildren rather than the children. If you’ve given the money to a son or daughter and they get divorced, half of it could end up going to the spouse in the divorce settlement and not being used as you expected.

  1. Use tax planning

Many people will be paying out of debt, leveraging the costs over a lifetime of earnings, so that takes careful planning, balancing budget choices between paying down the mortgage or the school fee loans and paying in to pensions –for some it may be worth using the tax breaks to pay into a pension and then paying off outstanding school fee debt with the tax free commutation. Many will want to save into ISAs before they have children.

  1. Invest wisely

If you do have savings that you plan to use to cover fees it’s important to consider how they are invested – whether you need capital growth and what risk you can sensibly take to achieve it.

  1. Negotiate

For those who have the capital it may be worth going to the school and speaking to the bursar to negotiate fees. If the school is looking to fund developments like an Astroturf pitch your discounted prepayment of several years’ fees may be a preferred option to a bank loan. But if doing this, think how you might retrieve your money if your child gets expelled or you decide to pull them out because of issues like bullying.

  1. Ask if it’s worth it.

My eldest is 31 and my youngest has just graduated. Would I do it again? I’m not sure. The strain of paying is getting greater and greater, particularly when you take into account the taxes. A lot of state schools are better than they were. I think there’s less peer pressure amongst the upper middle classes to follow the private route. A lot of people paid for private education to help their children build strong peer connections but with the globalisation of our private schools the perceived value of that is arguably diminishing. The quality of education is not assured and there are risks – if your child mixes with the wrong sort they can be exposed to a drink and drug culture that can damage them forever.

This is not a simple decision and there are so many factors that will influence a decision – do what’s right for you and your children, but recognise the full financial implications before you begin the journey.

Charles Calkin

First posted on 17 September 2015

You should not act on this content without taking professional advice. Opinions and views expressed are personal and subject to change. No representation or warranty, express or implied, is made of given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions.

The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested. This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies. Fluctuations in interest rates may affect the value of your investment. The levels of taxations and tax reliefs depend on individual circumstances and may change. You should be aware that past performance is no guarantee of future performance.

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