With the Office for National Statistics confirming inflation of 10.1% for the 12 months to July 2022, UK household wealth is being eroded at the fastest rate in a generation.
The Bank of England predicts an inflation peak of 13.1%. A price cap rise in October is set to raise energy bills again and consumer confidence is at an all-time low.
You might have been revisiting your finances lately. While some Brits look to cut pension contributions, others are giving up valuable protection products. One in seven over-50s, meanwhile, have altered their inheritance plans to help their struggling children.
If you have loved ones that you’d like to protect from, or help through, the cost of living crisis, there are several factors you’ll need to consider.
Here are three of them.
1. Future financial stability remains vital despite struggles in the present
You might have started providing a nest egg for your child the moment they were born. Savings and investment products like Junior ISA (JISAs) offer tax-efficient ways to provide for your child’s future.
Paying into a pension on their behalf, however far off their eventual retirement might be, is another great way to instil good habits, while providing financial stability in later life.
If you can afford to maintain these payments, do so. You might need to revisit your household budget to free-up additional disposable cash. A break in contributions or savings now, though, could make a huge difference later on.
Finally, as important as your child’s financial security is, remember that you need to ensure your own long-term plans remain on track too.
2. You might need to find additional money for child care or school fees
As well as thinking about your child’s long-term financial stability, you might find rising costs affect your day-to-day expenses.
The Telegraph recently reported that childcare expenditure is skyrocketing. The average cost of a nanny has risen by 13% in the last year. That marks the biggest jump since records began and is in stark contrast to the average 2% rise seen over the four years to 2021.
The increase means that you could be paying upward of £32,000 a year.
Schooling costs are also on the rise. Recent reports suggest that some private school fees have increased by around 6%, although fees vary by region and the type of schooling offered.
Day schooling in the northwest of England, for example, costs around £13,500. This compares to around £18,750 a year in London. Average fees for boarding schools average around £37,500 a year but can reach £50,000.
Factoring these rising costs into your financial plans as you struggle to meet your own commitments might not be easy. Contact us now and we can help you to take a holistic look at your finances to work out where the extra cash might come from.
3. Children looking to get on the property ladder could be particularly affected
Rising house prices and wage growth well below inflation mean that first-time buyers might be struggling at the moment.
You might help by opening the Bank of Mum and Dad, but you’ll need to understand the impact of this on your own plans. Be clear from the outset whether the money you are offering is a gift or a loan. If the latter, get a repayment plan in writing. This can be particularly important when a child is buying with a partner.
If you had planned to leave your child an inheritance on death, consider the benefits of giving while living.
HMRC gifting rules allow you to gift money tax-efficiently in some circumstances. The annual exemption allows you to gift £3,000 tax-free each year. Not only that, but the exemption is an individual one, and can be carried forward for one year.
If you and your partner didn’t use your exemption last year, you could gift up to £12,000 this tax year. And because you’re giving while living, you’ll still be around to see the positive difference your money makes.
You might be able to help in other ways, even if you aren’t in a position to open the Bank of Mum and Dad. Welcoming a child back to the family home rent-free might give them the space and time they need to save for themselves.
Get in touch
If your children or grandchildren are struggling with rising living costs, you might be keen to help. Remember, though, to do so only within your means.
At HA&W we can help you to help them, ensuring that you and your loved ones can make it through the current cost of living crisis without jeopardising your long-term plans or future financial stability.
Contact us now to find out how our Chartered financial planners can help you and your children.
Please note
The value of the investments you hold can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
