Giving financial help to your student child | SavvyWoman

Parental help for students; if your son or daughter is off to university, what’s the best way to help them financially?

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Although the student loan is still the main source of income for most students, many parents – and some grandparents – also provide financial help. So if your son or daughter is off to university, what’s the best way to help them financially?

Paying towards university living costs

Whether you’re helping with rental costs or providing money for specific expenses, such as a car or laptop, it’s much better to give a set amount than to cover costs without imposing a limit.

  1. Give your child regular and fixed amounts. Learning to budget is one of the biggest financial challenges a student faces. If you bail them out when they run out of money rather than giving them a fixed amount it will make it harder for them to see the merits of budgeting.
  2. Make sure they limit their borrowing. It’s really tempting to spend on socialising, clothes and/or tecchy toys when you’re at university and I’m not saying that your student son or daughter should never spend any money, but every penny they borrow will have to be repaid once they graduate (with interest).
  3. Be careful not to fall foul of inheritance tax rules. This may be more relevant to grandparents than parents, but it’s worth knowing that there are limits on how much you can give away each year. You can give away up to £3,000 a year without having to worry about inheritance tax and you may be able to give away more than this.

SAVVY TIP: Inheritance tax is charged at 40% on anything you leave that’s worth more than £325,000 (in tax year 2019-20) when you die. Married couples and those in a civil partnership can transfer their inheritance tax allowances to each other, so effectively doubling the amount they can leave free of IHT.

Covering insurance costs

Your insurance policy can be used to cover your child’s possessions while they’re at university, saving them money on paying for a separate policy. Some insurers charge for this while others offer it free. Check what the limits for cover are as some can be fairly low.

SAVVY TIP: Most policies don’t accept claims from a student if something’s stolen from their room that doesn’t have a lock on it.

Car insurance

You can add your son or daughter’s name to your own car insurance policy if they use your car occasionally. But don’t be tempted to do this if they’re really the main user. It’s called ‘fronting’ an it’s illegal and car insurance providers are increasingly clamping down on it.

Watch out! Fronting will invalidate your car insurance policy. If you add your son or daughter as a named driver when they’re really the main driver the insurer can withdraw cover and refuse to pay claims.

SAVVY TIP: If your son or daughter was involved in an accident and the insurer can show that fronting was involved, they may look to recover the costs from you as the policyholder or your son/daughter as the driver. There could be penalty points added and additional fines to pay as well.

Related articles:

Saving on student costs; how to spend less when you’re a student

Getting to grips with budgeting

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