Parents are having to find extra sources of income to cope with the spiralling costs of putting their child through the education system. It now costs around £1,000 a year for those in a state primary school, while the annual bill for secondary school pupils is nearly £2,300. And for those wanting private education, the bills are substantially higher, particularly now that schools have to charge VAT.
Here we explore how to financially prepare for your youngster’s school life, how much you’ll need, and the investments that can help you hit these targets.
Please remember that the value of investments will fluctuate and returns may be less than the amount originally invested. Tax treatment depends on your individual circumstances and tax rules can change. Chelsea does not offer advice and so if you are unsure of anything please contact an expert adviser.
State education might be technically free in the UK, but most families will spend more than £20,000 over the 13 years – especially factoring in likely inflation – to cover basic essentials. This includes uniforms, PE kits, lunches and snacks, school supplies and transport, as well as the cost of various field trips, materials and other curriculum-related items.
These fees have increased by a staggering 30% for secondary pupils over the past two years, according to research from the Child Poverty Action Group, with food being listed as the biggest cost pressure, with packed lunches and snacks costing up to £846 per year*.
Privately educating your child has always been expensive – and it’s become even more costly now that VAT is being added to the bill. The Government announced controversial plans last summer to impose VAT on private school fees and the policy took effect at the start of 2025.
Private day school from the ages of five to 18 will cost an average of £461,430, according to an analysis by Rathbones. This includes an extra £76,905, courtesy of the 20% VAT levy. Of course, this also depends on where you live in the UK. The highest price is London where the new rate is £574,051, while Northern Ireland is the cheapest with a comparatively cheap £184,812**.
Faye Church, senior financial planning director at Rathbones, said: “The impact on parents’ finances over a child’s school career of adding the full 20% VAT to fees is substantial and may mean some will decide they cannot afford the expense or need to consider other ways in which to manage the costs of the education for their family.”
How can you prepare?
Whichever route you choose – state or private – it’s important to have a financial plan in place for how you’ll be footing the bill. Here are four points to get you started:
1. Consider your situation
Be realistic about your financial situation, career prospects and longer-term goals. Work out a budget and see how much you can afford to put away each month. Remember the basics: ensure you have emergency money set aside that can act as a buffer and ensure you’re living within your means.
2. Make a start
The earlier you start investing for your child’s future, the greater your chances of having enough money when the first day of term rolls around. Ideally, begin putting money aside before you even talk about starting a family. This will give you a head start and enable you to enjoy the benefits of compounding.
3. Be tax efficient
Make the most of the Individual Savings Account rules – particularly in case changes are made to the rules in the coming years. Each adult taxpayer can invest up to £20,000 per year without having to pay income or capital gains tax. It means couples are able to invest up to £40,000 annually.
4. Fund suggestions
There are thousands of funds available – so how do you pick the right one? Well, this will largely depend on where you are in this investment journey. They can be divided into growth and income routes, depending on whether the focus is on building the pot of cash or maintaining what’s already been accumulated.
Growth
If you’re not yet a parent, want to maximise the nest egg, and in a position to ride out volatility, a growth-focused portfolio is worth considering.
For example, the Rathbone Global Opportunities fund scours the globe to find exciting businesses with substantial growth potential. Manager James Thomson looks to buy innovative companies that have flown under the radar of the main market. The fund aims to identify global themes and invest in them early. James has managed the fund since 2003 and has one of the strongest track records in its sector.
How about if you want more concentrated exposure to particular regions? For example, Asia offers the seductive prospect of growth potential and demographic advantages. One way to access these markets is via M&G Asian. This is a high-conviction fund that focuses on business quality, industry trends, valuation and risk of ownership. Lead manager David Perrett and his team whittle down a potential investment universe of 500 companies into a portfolio of 50 to 80 names.
Income
Of course, you may be at the fortunate stage of having built up a sizeable war chest through years of diligent investing or having been left some money in a will.
In this scenario, you may be more focused on using the money to generate an income that can meet your needs, without having to dip into the principal invested. The Guinness Global Equity Income fund aims to provide investors with both income and long-term capital growth from a portfolio of around 35 equally-weighted stocks. The focus of the fund’s managers is finding high-quality stocks that have consistently outperformed their respective sectors.
If you favour fixed income over equities, then you may want to consider Jupiter Monthly Income Bond. This is a very solid monthly income bond fund. The fund runs quite a short duration, meaning it is less exposed to interest rates versus many other bond funds. The fund is a combination of investment grade and high yield bonds, with the manager varying the weight between these two buckets, depending on whether they want to be more aggressive or defensive.
