A level results and student debt: AIC data on saving for the next generation with investment companies

New data from the AIC looks at how investment companies could help parents wanting to contribute financially to the cost of university.

On Thursday 17th August, the waiting will be over for teenagers across the country as they will find out how they fared in their A level exams, and if they’ve successfully achieved their place at their chosen university.

As the next step for many after school, university gives students the opportunity to stand on their own two feet. However, a recent study from the Institute for Fiscal Studies* revealed that the average debt students will have on graduation is a staggering £50,000. To ease the financial burden, some parents may choose to contribute to help their child finance university.

In a recent survey on student debt, the Association of Investment Companies (AIC) discovered that 64% of parents said they were planning to contribute or currently contribute to help their child finance university. When asked the main way they were contributing or planning to contribute financially to help their child fund university, 55% of parents stated they would be using some of their cash savings, whilst 16% would be using all or most of their cash savings.

With the total amount of debt students graduate with seemingly creeping higher, are parents who want to help contribute financially towards the cost of university missing a trick by focusing on cash savings? The current low interest rate environment has had a significant impact on cash savings and parents may want to consider the stock market’s potential for long-term growth for part of their savings.

Annabel Brodie-Smith, Communications Director, Association of Investment Companies said: “With the arrival of A level results day, many parents of those waiting for their results will have already started planning how to help with the costs involved for university. However, for those with younger children it’s never too early to start thinking about saving for the considerable future expense of university.

“Our recent survey revealed that cash savings accounts were still king when it came to the main way parents saved specifically to help towards their child’s future, but it’s worth considering the benefits of investing in an investment company. An investment company gives investors access to the long-term potential of the stock market and, by investing in a range of companies on your behalf, they spread your risk and offer professional fund management. If you had regularly invested £25 per month in the average investment company over the last 18 years, this would have grown to over £16,000, a third of the cost required to clear the average student’s debt and £50 per month would have grown to over £32,000. For those parents who are fortunate to be able to save £100 a month over 18 years this would have grown to more than £65,000, enough to currently clear their child’s student debt and have some money left over.”

Monthly investment over 18 years to 31 July 2017

 

£25 Regular savings 

£50 Regular savings

£100 Regular savings

Sum invested

£5,400

£10,800

£21,600

Overall weighted average investment company ex VCTs

£16,259.44

£32,518.88

£65,037.76

Global sector weighted average

£16,726.70

£33,453.40

£66,906.80

UK All Companies sector weighted average

£15,744.37

£31,488.74

£62,977.48

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Notes

  1. *Institute for Fiscal Studies (July, 2017), Higher education funding in England: Past, present and options for the future
  2. Performance data is share price total return to 31 July 2017 based on the last official close price at the month end, on a total return basis. No expenses taken into account. Source: AIC using Morningstar.
  3. The Association of Investment Companies (AIC) was founded in 1932 to represent the interests of the investment trust industry – the oldest form of collective investment.  Today, the AIC represents a broad range of closed-ended investment companies, incorporating investment trusts and other closed-ended investment companies and VCTs.  The AIC’s members believe that the industry is best served if it is united and speaks with one voice. The AIC’s mission statement is to help members add value for shareholders over the longer term. The AIC has 350 members and the industry has total assets of approximately £169.9 billion.
  4. Disclaimer: The information contained in this press release does not constitute investment advice or personal recommendation and it is not an invitation or inducement to engage in investment activity. You should seek independent financial and, if appropriate, legal advice as to the suitability of any investment decision. Past performance is not a guide to future performance. The value of investment company shares, and the income from them, can fall as well as rise. You may not get back the full amount invested and, in some cases, nothing at all.