FOOL'S EYE VIEW
Ten Ways To Boost Your Family Finances!

By Cliff D'Arcy
March 31, 2005

"A father is someone with photographs in his wallet where it once held cash."

As any parent will tell you, raising children is a seriously expensive activity. Of course, it's also a joyful experience but, boy, does it hit your wallet for six! Indeed, I imagine that it would be cheaper to invite another adult to move in with you than it would be to have a child.

And, of course, looking after your kids leaves you with less time to manage your finances. So, I've put together a list of ten tips to help families to flourish. Here it is:

1. Teach yourself and your kids to budget

Budgeting is the absolute cornerstone of good financial management. Every company and state body tries to stay within clearly defined budgets and yet, oddly, most individuals don't practise this simple art. That's not surprising, because most of us aren't taught how to budget at school or at home. Still, setting a monthly budget – and sticking to it – is one of the best ways to get a firm grip on your finances.

2. Claim Child Benefit

Child Benefit is a tax-free income paid to parents with children under sixteen (nineteen, if s/he is in full-time study at A-level standard or equivalent). It is paid every four weeks, usually by direct credit into the mother's bank account every four weeks. From April, it increases to £17 a week for the first child and £11.40 for other children. Thus, a family with two children would receive Child Benefit of almost £1,477 a year, with no tax to pay on this sum.

Although many parents use Child Benefit to supplement their household income, others save or invest it for their children. For example, Coventry BS recently launched its Family 1st account - an instant-access savings account that pays a market-leading 7.25% AER fixed for one year on Child Benefit deposits. Other money earns a generous 5.25% AER.

You can open a Family 1st account online via our Savings centre.

3. Open a Child Trust Fund account

If you have a child who was born after 31 August 2002, you should by now have received a voucher from the Inland Revenue. Depending on when your child was born, this will be worth between £250 and £277. Families with a household income below £13,910 in 2005/06 receive double the normal payout.

From 6 April, you can invest this voucher in one of around seventy Child Trust Funds (CTFs) that financial companies have created. There are three basic types of CTF: savings, stakeholder and shares, all of which provide tax-free returns. What's more, parents, family and friends can contribute up to £1,200 a year on top of the government's gift, which makes CTF a very efficient vehicle for saving or investing for children. However, the entire fund is paid directly to your child on his/her eighteenth birthday, so beware of spending sprees!

Personally, I'm going to whack my one-year-old daughter's voucher, plus an extra £100 a month, into shares, because I believe that they will beat both the other options over the next 16½ years! You can learn more about CTFs here and visit the official Child Trust Fund website.

Visit our Saving for Children centre, which includes CTF providers.

4. Get yourself a tax-free savings account

If your child was born before 1 September 2002, s/he cannot have a CTF. However, you could save for him/her – or for yourself – in a tax-free cash mini-ISA in your name. If you are sixteen or over, you can open a cash mini-ISA and pay in up to £3,000 per tax year. The cool thing about these savings accounts is that they pay high rates of tax-free interest, which doesn't have to be declared to the taxman.

A cash mini-ISA should be the first port of call for any serious saver – many can be opened with as little as £1. But don't hang around, because this year's ISA allowance runs out next Tuesday, 5 April! Handily, we have two tasty cash mini-ISA accounts in our cash ISA centre, which you can open online.

Earn a tidy tax-free 5% AER or more in our Cash ISA centre – time's running out!

5. Open a Best Buy savings account for your kids

Rather than just handing over pocket money to your kids and watching them splurge it in seconds, why not open a savings account for them? It helps to teach them the basics of money and - with any luck - it may give them a lifelong savings habit, which is no bad thing to have!

Many children's savings accounts can be opened with as little as £1, with the Best Buys paying annual interest of 5%-plus. Ignore the gimmicks and freebies and just choose a high-paying instant access account. On the high street, Nationwide BS' Smart account pays 5.01% AER, Halifax Save4it pays 5.05% AER, and several smaller building societies also offer good rates. By the way, most children don't earn enough to pay tax on their interest, so make sure that you fill in a form R85, ideally when you open an account, although you can do this at any time.

You can read more about saving for children in Build A Better Future For Your Kids.

6. Claim Child Tax Credit and Working Tax Credit

Child Tax Credit (CTC) is another State benefit paid to families with children but, unlike Child Benefit, it's not universal, so your entitlement is affected by your household income. Families earning under £13,910 over the next tax year will receive the maximum benefit, with the payout decreasing on a sliding scale. If your household income is under £58,000 (£66,000 if you have a child under one), you'll be entitled to some element of CTC.

Though nine out of ten (90%) of the UK's 7.2 million families are entitled to tax credits, up to two million households have failed to claim CTC. Don't be one of them: apply for Child Tax Credit today!

Working Tax Credit is a benefit that is paid to workers. As with CTC, it is means tested, which means that your award is based on your household income. If you are sixteen or over, are working and have one or more children, you may receive a basic award, plus extra benefit towards your childcare costs. Again, all but the highest-earning households can claim WTC - find out what you could claim here.

7. Convince your employer to introduce childcare vouchers

Childcare costs in Britain are higher than anywhere else in Europe, with the average cost of a private day nursery weighing in at over £580 a month. Of course, fees are much higher in London: day care for my two children costs over £100 a day. Indeed, it's almost not worth my while working, so it's lucky that I love my job!

The good news is that from next Wednesday, 6 April, childcare vouchers will become much more attractive to working parents. The first £50 of vouchers each week will not be liable to National Insurance Contributions (NICs) and income tax. This calculator (which requires the Shockwave Flash plug-in) shows you how much you could save by getting vouchers.

For example, if you were to sacrifice £2,600 of your salary in return for £50 a week in vouchers, you could be £858 a year better off (£1,066 if you pay higher-rate tax). So, a high-earning couple could be £2,132 better off each year, which is a bonus! What's more, your employer also benefits, because it doesn't have to pay employer NICs (12.8% of the income sacrificed), which helps to fund the cost of proving the scheme.

8. Shop around online

Raising a child can easily add £5,000 a year to your expenses. That's why it's so important to shop around for your purchases, especially big-ticket items. Buying second-hand goods and accepting hand-me-downs work for me, too! Where you shop is important, too – shopping around online can produce big discounts off high-street prices.

Instead of popping into Mothercare, try visiting these specialist baby and child websites: Kiddicare, Nursery Direct, Two Left Feet and Pramworld, plus these price-comparison websites. For instance, I recently saved bought The Incredibles on DVD for £9.49 (RRP: £22.99) and a child's car seat for £65 (RRP: £90) after surfing the Web for just a few minutes.

9. Start saving for further education

These days, close to half of all teenagers go into tertiary education, with the financial burden of further education falling on the students and their parents. Of course, you don't have to give your child a whopping great windfall to spend in the college bar, but help with fees and living expenses would be most welcome!

Let's say that you save £100 a month of your Child Benefit in a low-cost stock-market investment, such as a cheap, flexible, simple index tracker, protected by a tax-free ISA wrapper. Growing at, say, 9% a year, this would produce a lump sum of almost £37,000 after fifteen years. This should be enough to cover three years of partying and cramming for exams! Then again, if your child decides not to go to university, it would be a useful deposit for his/her first home.

10. Protect yourself and your family

Your home, its contents and your car are probably insured, but what about your life and your income? And don't forget your partner's contribution to the household, whether s/he works or not. If you have financially dependent children, you must have life insurance and income protection (long-term sickness cover). If your employer doesn't provide these for you, then shop around online for cheap premiums.

You'll find cheap protection in our Insurance centre.

I'll end with a final quote about parenting:

"Children aren't happy with nothing to ignore,
And that's what parents were created for." - Ogden Nash, American comic poet

More: Visit our Savings, Saving for Children, Cash Mini-ISA, Index Tracker and Insurance centres.