My toxic trait has always been saying ‘it’s only £10’ about 1500 times a week, so you definitely don’t need to hear it from me about how stressful the rising cost of living is becoming. And with prices rising, so are the amount of questions I have about my finances, investments in my children’s wellbeing, and how to ensure their future financial stability. That’s why I was so happy to catch up with our friends at Nosso, who offered their expert advice on all things children, finance, childcare costs and the question on everyone’s lips - why is everything so expensive right now?
💭 Seriously, why is everything so expensive right now?
The past few years have seen events that would usually play out over decades, play out in just a couple of years. A pandemic, conflict in Ukraine, labour shortages and slow down of countries’ economies have all come at once and that’s had a knock-on impact on our everyday life.
The combination of these has resulted in supply issues with things like grain (bread, rice, and porridge oats) and natural gas and oil (so think electricity for your home or the petrol you put in your car). Supply decrease meant that prices increased. At the same time with everyone coming out of lockdown, demand for these things has been supercharged.
These two things happening simultaneously have built the perfect storm for price increases.
💭 What advice would you give to a budgeting newbie looking to introduce tighter budgets?
Keep it simple. It doesn’t need to be a huge complicated excel spreadsheet, it just needs to be simple and convenient enough so that you actually use it. You just need to keep a couple of budgeting principles in mind;
- Getting a handle on what you’ve got coming in every month and the essentials you’ve got going out.
- Move the essentials to another account that’s only used for that (don’t mix fun spending with bills spending).
- If you have enough left over, try to move some to a savings account or investment account at the beginning of the month not the end (this little trick and can help you save so much more).
- Enjoy the rest, don’t feel bad about whatever you spend it on as you know you’ve covered your basics already.
💭 What are the best ways to save for your child in the current climate?
If you’ve got the money to put aside, it’s tempting to think to just put it in a simple savings account as things are a little uncertain at the moment. But if your goals are for your child’s long-term future then putting money into a savings account may not be the best fit for your little one. Inflation is riding high at 11.8% meaning every £100 in your pocket is worth £88.20 a year later (let alone in 18 years’ time). So a saving account paying you 1.5%-2.5% each year is not really going to bridge that gap. Investing over the long term tends to yield better long-term results.
If you’re struggling to find the money in the first place there are a few things you can do;
- Make sure you’re getting everything you’re entitled to. Nearly £1bn went unclaimed in child benefits last year which could be an extra £1,084 a year. Make sure you’re getting this if you’re entitled to it.
- Encourage your family to swap some physical presents for contributions to their savings or investment account. We’re not saying no more presents, just instead of spending £20 on a present this Christmas, why don’t they spend £10 and put the rest towards their JISAs? It all adds up and you can be doing some good for the planet at the same time.
💭 Why is childcare so expensive and is there anything I can do to reduce these costs?
Childcare is expensive everywhere. Think about it — you want the people who look after your children to do a good job and that comes with a price tag. The issue in the UK is that, unlike in most European countries, the government doesn’t really chip in to help with the costs. But there are two schemes they offer which can help reduce the costs:
- Tax-free childcare - You're entitled to £500 every 3 months to help with the costs of childcare. So for every £8, you pay for childcare the government will pay £2. Let’s say you get a bill from the nursery for £500. Well, you’ll only have to pay £400, with the government paying the remaining £100. All you need to do is register for a tax-free childcare account.
- 15-30 hours free - Between the ages of 3 and 4, every child in the UK is entitled to 15 hours of free childcare, some up to 30 hours (this is means tested). This can be used within most childcare settings provided they are Ofsted, including nurseries, schools, afterschool clubs and childminders.
💭 What's the right age to start educating your child about money?
As soon as they can start to count, it’s a good idea to slowly start introducing them to money and more importantly the value of money. Small chores like tidying away a game or watering the plants can be rewarded with a coin they can save up and spend after a period of time.
It can also be useful to introduce your kids to the concept of saving and investing as they get a bit older. As adults, we now know how important it is to invest in our future in and many of us wish we had started earlier. Whilst it might sound a bit much, by teaching our kids early on, we are putting them into the mindset of putting money away for their future and the patience needed to make the most of that 9th wonder — compound interest.
💭It feels like there are so many different types of savings accounts! Can you explain the differences between the main types a growing family might use?
It can be a head spinner for sure, there are so many ways to start saving for a growing family. So here’s the breakdown:
Easy access savings accounts - These usually pay the lowest amount of interest and that’s because you can get the cash out whenever you like. You’ll typically be looking at an interest rate of 1%-2%, so for every £100 you save for a year, you’ll only get back £1-£2.
Fixed-rate savings accounts - Similar to the above, the difference being that you have to lock your cash up for a year or maybe even three years. The longer you lock it up the more you’ll be rewarded. If you take it out early a penalty fee might apply. You’ll typically be looking at an interest rate of 2%-3%, so for every £100 you save for a year, you’ll get back £2-£3.
Junior ISAs - Two types
- a Cash Junior ISA and
- a Stocks and Shares Junior ISA.
The cash Junior ISA works similar to a fixed rate account i.e. the money is locked up until the child is 18. For that reason, you’ll find higher rates of interest around 2-2.5%
The Stocks and Shares Junior ISA is invested in company shares or funds (which hold loads of different companies’ shares). A Stocks and Shares ISA does not have a fixed rate, the return is based on how well the investments do. Generally speaking over the long term a Stocks and Shares ISA will tend to outperform any fixed rate savings account, but as it is invested the money you put in can go down. The big benefit of a Junior ISAs is that any interest, income or gains earned are completely tax-free.
Bare trusts - An account which allows you to invest like a Stocks and Shares Junior ISA, but you don’t need to lock the money away until the child turns 18. These can be good if you want to save and invest for your little one, but pay for things like school fees, tuition, or educational trips in the not to distant future.
Junior pensions - Yes, pensions exists for kids too. They work similar to adult pensions, but are limited to £3,600 each year. The great thing about these is that for every £1 you put into a junior pension, you’ll get 20p from the government. So for example if you put in £2,880 the government will give you £720 to take it up £3,600. Key point to remember is that they won’t be able to get the money until age 57 (currently).
Thanks so much to the team at Nosso for their helpful advice! I definitely feel better equipped when it comes to saving and I hope you do too. Remember that we’re always here to talk and help share the load, from our facebook group to our Whatsapp chat to our instagram DM’s.
Love, Sophie and Team Mamamade x