As the cost of living continues to increase in the UK, you will probably have noticed its effects on your monthly outgoings. From household essentials like food and utilities to luxuries like foreign holidays and eating out, it is hard to miss the rise in prices.
In fact, according to the BBC, the cost of food has risen by 8% in the year to May 2022, and further increases are expected in the near future.
As a high earning IT professional you might be able to comfortably absorb the effects of rising prices better than your loved ones. This is especially the case if they are younger and have not had as long to build up their wealth or advance their careers.
Rising inflation can seriously affect young people’s finances so if you are worried about your children or grandchildren, find out three great ways you can shield them from the cost of living crisis.
1. Offer them direct financial support
As you will remember from the start of your own career, everyone has to pay their dues by starting on the bottom rung of the ladder and working their way up with hard work and determination.
While working for low pay may be an important rite of passage for young people, it can be a problem during a cost of living crisis.
According to data from the Office for National Statistics (ONS), the Consumer Prices Index (CPI) measure of inflation rose to 10.1% in the year to July 2022. With prices rising so quickly, your children may struggle to make ends meet if they are still in the early stages of their career.
Whether they are working for a low wage in an entry-level job, or even as an unpaid intern, the cost of living crisis could seriously affect your loved ones’ financial wellbeing. In a worst-case scenario, they may even have to rely on expensive credit.
At this important stage of their lives, an early obstacle like the cost of living crisis could make it much harder to build up their wealth. This may mean that they have to push back important milestones, such as buying their first home or starting a family.
If you are concerned about how rising prices could affect them, you could consider offering direct financial support to help them weather the storm. For example, you could consider giving them a monthly stipend, at least until the crisis is over.
Alternatively, you could offer them a lump sum to act as an emergency fund in case they need it. This option can be especially helpful if you want to avoid the risk of them falling into unmanageable debt.
2. Pay their student loans on their behalf
In the modern economy, a university education can open doors that might otherwise be closed. University can give your children valuable opportunities to learn skills that will help them shine in the workplace.
Of course, to be able to study, your children may be forced to rack up a significant amount of student debt. In England, the annual undergraduate tuition fees are capped at £9,250 a year but over the course of a three or four year degree, this can add up to a substantial sum.
This is especially true when you consider that the interest rates on student loan repayments are set to increase in September. According to MoneySavingExpert, they will rise from 4.5% to 7.3%, reflecting the Bank of England’s recent changes to the base rate.
This means that your loved ones, who may be emerging into graduate roles, could potentially see their loan repayments increase sharply. As such, the cost of living crisis could be even more painful, as they have to deal with less take-home pay and the rising price of goods and services.
If you want to help your loved ones financially, one option you could consider is to repay these loans on their behalf. By removing this debt that they have hanging over their heads, you can enable them to grow their wealth more effectively.
Of course, this option may not be right for everyone, which is why you should seek professional financial advice before acting.
3. Help them buy their first home
For most people, one of the biggest milestones in life is buying a first home.
While the strong growth in house prices over the past few years has been a boon for people already on the ladder, it can pose a problem for prospective buyers.
According to data from the ONS, house prices rose by 12.8% in the year to May 2022, meaning that the average home now costs £283,000. This is an impressive rate of growth, but if your children do not yet own a property then it could mean that they struggle to afford a mortgage.
This is especially true if they are still renting, as rising costs could reduce their ability to save. According to the Guardian, the average monthly rent outside of London has increased by 11.8% in the past year, while inside the capital it rose by 15.8%.
With this in mind, if you want to give your loved ones a useful leg-up during the cost of living crisis, you may want to consider helping them to take the first step onto the property ladder.
For example, you could give them a financial gift, so that they can more easily afford a mortgage deposit. If they already have savings, topping it up could help them to secure a better deal with lower interest rates. This, in turn can help reduce the long-term costs of maintaining their mortgage.
Alternatively, you could consider acting as a guarantor. This essentially involves pledging to make monthly repayments on their behalf if your child or grandchild is unable to, offering some of your savings or even your home as security.
One huge benefit of this is that it can potentially allow your children to borrow a much greater amount, making it easier for them to get onto the property ladder.
Of course, it is important to bear in mind that you could be liable for the cost of the mortgage debt if your loved ones are unable to keep up with their payments. That is why, before you act, it can be useful to seek professional advice, so you can be certain that it is the right decision for you.
Get in touch
If you want to discuss ways you can shield your loved ones from the cost of living crisis in the most effective way, we can help. Email email@example.com or call us on 01275 462 469.
Your home may be repossessed if you do not keep up repayments on a mortgage or other loans secured on it.
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Bowmore Financial Planning is not regulated to provide mortgage or tax advice.
Bowmore Financial Planning Ltd is authorised and regulated by the FCA.