...or any couple planning to have children, we would recommend the following financial tips.
We all know that parenthood is a full-time job and a lifetime responsibility, and it is not all sunshine and roses.
On 2 May 2015, the Duke and Duchess of Cambridge welcomed a new member of the British Royal Family- Princess Charlotte Elizabeth Diana. One might think money is the least of the British Monarchy’s worries, but with a growing family, a lifestyle to uphold and their lives constantly under the spotlight, it might just be the thing to consider.
So we thought it might be fun to ask some of our qualified financial advisers what tips they would give to the royal couple (and any other couple) to address the financial needs of a growing family. For the sake of this article, let’s pretend that William and Kate will not have a kingdom and they are just like other parents leading ordinary lives, shopping for milk and cereal in the local supermarket. So if we were William and Kate's financial planner, here are the tips we recommend:
1. Purchase a buy-to-let property
William and Kate should consider purchasing properties for each of their children, which they can gift to them after 25 years. They can finance these properties by borrowing against their existing assets and splitting the borrowed funds between paying the mortgage and acquiring investments. While both the properties and investments increase in value over time (above inflation, of course), they can let out the properties and use the income to alleviate the growing cost of school fees. Ultimately, they would be able to pay for the mortgage, acquire properties for their children, and achieve gains from their investments (if set up responsibly).
2. Take out or increase their life insurance policy
The common face of insurance advertisements is a family with very young children, and as parents, the royal couple should always be prepared for the worst. We recommend increasing the amount and coverage of any existing insurance policies and include Princess Charlotte as a beneficiary. Parents who are expecting new members should immediately consider this aspect of financial planning.
3. Set up a will
A lot of Britons leave their loved ones in distress because they do not set up a will. This does not only cause emotional chaos between family members but also financial problems. Not establishing a will and not having a financial plan can result in higher inheritance tax payments. By establishing a will, William and Kate can ensure their children benefit financially as much as possible from their assets and it will more generally make things vastly easier for the loved ones they leave behind.
4. Think about retirement
Having been used to a certain lifestyle during their working years, William and Kate will want to ensure this continues right through their retirement and into old age. Simply saving up for retirement may not be enough, especially considering inflation. To ensure a sustainable retirement income without any lifestyle shortfalls, the royal couple could do a lifetime cash flow model to determine if their existing assets are enough to sustain their family’s current lifestyle. If this reveals they are not on track to achieve the royal retirement they desire, then they can make adjustments to their investment portfolios to help ensure they hit their goals.
5. Obtain a stakeholder pension for their children
The world never fails to create more and more ‘needs’ to entice people to spend more than they could and should. Long-term priorities are, more often than not, shelved for short-term ones. A smart move for parents is to set up a stakeholder pension for their child, which they can use in retirement. For example, William and Kate set up a stakeholder pension for each child with £3,600 gross per annum. With a 20% income tax relief at source, this would only cost them £2,880 per annum (£240 per month). With a growth rate of 5% per annum, this pot would increase to £838,280 by the time each child is 55 years old (£164,946 in present value, assuming inflation is at 3% per annum).
Providing for your children’s future and ensuring that they are taken care of even when you are gone creates the sense of security for every parent. The more you can do in the early years to plan for future costs ahead, the easier it will be for you and the new members of your family.