- The amount grandparents are giving is increasing faster than inflation
- Parents favour cash savings despite the higher returns seen from investing
Grandparents are upping the amount they contribute to their grandchildren’s university costs, data shows, while university remains the main financial priority of parents when supporting their children.
A quarter of parents reported their children’s grandparents are helping to pay for university costs, with those grandparents giving an average of £4,703 per year, according to research by the Association of Investment Companies.
This figure has increased from £2,455 in 2013, outstripping inflation, which would have increased it to £3,337 over the period.
At the same time, 71 per cent of parents contribute to their children’s university costs, giving an average of £8,723 per year.
Outstripping inflation: The amount grandparents are contributing to university fees has grown considerably 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 as much as £9,626 a year on average, while 59 per cent of lower earners in the C2DE category contribute to university costs, giving £5,639 on average.
Nick Britton, research director at the AIC, said: ‘Millions of parents make big financial sacrifices to send their children to university, and our research shows that many grandparents are digging deep too.’
Almost half of parents said they prioritise university costs when supporting their children financially, with just a third reporting that a first property is more important, and 10 per cent focusing on paying for a first car.
Britton added: ‘It’s worrying more parents aren’t using the power of the stock market to help boost their savings over the long term.
‘Not everyone can afford to put money aside, but those who can usually use cash savings accounts rather than the stock market.
‘That’s despite the fact that most parents recognise an investment in the stock market will do better than cash over a typical ten-year period.’
The data suggests 64 per cent of parents use cash as their primary way of saving money for their children, with just 16 per cent using investment trusts, 15 per cent using shares and 10 per cents using funds.
When making these contributions, half of parents use some of their cash savings to do so, while 16 per cent of parents use all of their savings in order to support their children through university.
Despite favouring cash, a majority of parents think an investment would deliver better returns over a ten-year period.
While these parents would be right, with the average investment trust having returned £2,708 from a £1,000 investment over the past ten years, 37 per cent worry that there is too much risk involved, while 28 per cent said they don’t have enough money to do so.
More than a fifth each said they don’t understand investing, or haven’t even considered doing so instead of using a savings account.
Britton said: ‘While there are many ways to invest in the stock market, investment trusts provide 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 the average investment trust over the past 18 years would have left investors with £30,668 – comfortably covering what the typical parent contributes over three years of university.’
