Saving for your kids should not be your top priority, for their sake as well as yours!
Money worries cause real heartache and stress for parents, and that kind of bad feeling filters down to children. Even if you’re trying to hide your fears, youngsters are very perceptive and will almost always know that you’re worried.
But even if you’re not struggling financially, there are other priorities you should consider before saving into your offspring’s accounts. Here are the main contenders for your spare cash.
Saving an emergency fund
It’s a good idea to have between three and six months-worth of your salary saved in an easy access account, to protect you in case of emergencies. This isn’t cash saved for a new bathroom or a holiday; it’s to protect the roof over your head in the event of a disaster like sudden job loss or illness.
But, according to insurance provider Bright Grey, almost half of the 2,000 adults it surveyed had less than £1,000 available in accessible savings. That’s not a financially secure position to be in, so building up an emergency fund should be a serious priority.
It's worth getting a decent rate of interest on the cash that you set aside, so check out Coventry launches best buy instant access savings account for a guide to the very best easy access acounts at the moment.
Paying down debt
If you still have debt to clear then there’s no point trying to make long-term savings for you, or your children. Once you have an emergency fund in the bank, spare cash should go on paying off your debt.
After all, you can get a 3% return on most savings, but that outstanding credit card could be costing you closer to 20%. Paying down debt early will reduce what you pay in interest overall and free up more of your monthly income in the long run.
Topping up a pension pot
However much they would like a coming-of-age windfall, your children don’t want you to face an impoverished old age. Frankly, if they do, then you probably shouldn’t be saving for the little ingrates.
Not only that, but they can get help funding university through their student loan and potentially even hardship funds.
Yes, they’ll leave university in debt but they’ll have the rest of their lives to pay it off. No one’s offering retirement loans to supplement your old-age income, so prioritise your pension. After all, if you’re reasonably well off in your retirement, then perhaps you can help them then.
Check out Six steps that will treble your pension to ensure you get the best retirement income possible.
Overpaying the mortgage
With base rate so low, many mortgage holders are enjoying seriously low standard variable rates from their lenders, meaning they are paying much less than they were just a few years ago. Of course, high prices and low wages have swallowed that freed-up cash in many households, but not all.
If you’ve been left with some spare cash out of your mortgage pot then you might think it’s a perfect time to start saving for your children. But it could be worth overpaying your mortgage instead. If you pay down your mortgage then you might even be able to remortgage onto a lower rate, freeing up even more money and saving you interest.
It’s possible that one day your children will inherit your home anyway, so in a way this is saving for their future.
Put protection in place
You want to save for your children’s future, and that’s admirable, but have you made sure they’re safe for the present? What would happen to your family if you became sick and couldn’t work – or worse?
Life insurance and critical illness cover can cost from just a few pounds a week, but it gives you peace of mind that your youngsters will be taken care of if disaster struck.
This is so important, yet three in five people have no life insurance, critical illness cover or income protection, according to Bright Grey. One in four adults admitted they would have to drastically cut back on their living costs if the main breadwinner became ill or died, while another one in four admitted not knowing how they’d cope.
Upsettingly, more than one in ten said they’d need to sell their home – don’t be one of them!
Check out The mistake that will leave your partner in the lurch.
Make some memories
Do you have fun as a family? Perhaps this is a matter of opinion rather than sound financial advice, but I wouldn’t save for my child at the expense of family days out.
Trips to the seaside and the zoo, dips in the swimming pool, the latest Pixar film at the cinema, sharing a pizza, these things matter. There are free days out, of course, like museums and galleries, but even those cost money for transport and food.
I think these are an important part of family life, and shouldn’t be sacrificed even in order to save.
Confessions of a serial saver
Okay, confession time. I have savings for my baby boy – he has a stocks and shares junior ISA, into which his family make monthly payments. I hope that one day it will help him at uni or when he leaves home. With any luck it won’t be spent letting him live like a millionaire for the duration of a future Freshers’ Week.
So what I'm really saying is that you shouldn’t prioritise saving for your kids, rather than not save at all.
There’s nothing wrong with putting an affordable amount aside so that your precious progeny can buy their first car or have some help setting up their first home one day.
However, I think it’s easy to feel under immense pressure. You can feel that you have to max out your child’s tax-free savings every year. There are so many news articles suggesting you can make your child a millionaire, save £100,000 by the time he or she is 18, or even set up a pension for your kids.
All those things would be wonderful for any child – but they shouldn’t be a family’s top priority. If you have money to spare then that’s one thing, but other savings should come first.
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