Grandparents and parents are digging deeper than ever to send children to college
- The amount grandparents give is rising faster than inflation
- Parents prefer to save in cash, despite the higher returns that investing provides
Data shows that grandparents are increasingly contributing to their grandchildren’s education costs. At the same time, education remains the top financial priority for parents in supporting their children.
A quarter of parents said their children’s grandparents contribute to their education costs, with grandparents donating an average of £4,703 a year, according to research by the Association of Investment Companies.
This amount has risen from £2,455 in 2013, which is higher than inflation, which would have increased the amount to £3,337 over that period.
At the same time, 71 per cent of parents contribute to their children’s university fees, amounting to an average of £8,723 per year.
Beyond inflation: The amount grandparents contribute to college costs has increased significantly over the past decade
More than three-quarters of parents in the top three social and economic groups, known as ABC1, contribute to their children’s education, giving an average of £9,626 a year. 59 per cent of lower-income parents in the C2DE category contribute to university costs, giving an average of £5,639 a year.
Nick Britton, director of research at the AIC, said: ‘Millions of parents make huge financial sacrifices to send their children to university, and our research shows that many grandparents are also digging deep into their pockets.’
Nearly half of parents said they prioritize college costs when it comes to financial support for their children. Only a third said a first home is more important, and 10 percent focused on the cost of a first car.
Britton added: ‘It is worrying that more parents are not using the power of the stock market to grow their savings over the long term.
‘Not everyone has the money to put money aside, but those who can usually opt for a savings account instead of a stock market account.
‘And this while most parents realize that an investment in the stock market generally performs better than cash over a ten-year period.’
The data shows that 64 percent of parents use cash as their primary way to save money for their children, while only 16 percent use mutual funds, 15 percent use stocks and 10 percent use funds.
Half of parents use part of their savings for this purpose, while 16 percent of parents use their entire savings to put their children through university.
Although cash is preferred, a majority of parents believe that investing over a ten-year period will provide a better return.
While these parents are right, with the average investment fund returning £2,708 on a £1,000 investment over the past decade, 37 per cent worry there is too much risk involved, while 28 per cent say they don’t have enough money to do so.
More than a fifth indicated that they do not understand anything about investing, or that they have not even thought about investing instead of using a savings account.
Britton said: ‘There are many ways to invest in the stock market, but mutual funds offer diversified, professionally managed exposure to a range of investments and can be a good starting point for investors.
‘An investment of £50 a month in an average investment fund over the past 18 years would earn investors £30,668. That is more than enough to cover the amount the average parent contributes to university in three years.’