Today’s children might demand the latest computer game consoles and mobile phones – but paying for toys and gadgets, for many parents, is the least of their financial concerns.

The average cost of raising a child varies from country to country. But figures published each year have one thing in common – the cash needed for bringing up your offspring until they are 18 is much more than most would ever imagine.

Estimates from the last few years put the figure at around $230,000 for a child in America[1] and £230,000 in the UK[2] – and it’s likely that amount will only increase.

The cost of raising a child doesn’t stop when they reach 18 either. Parents – and grandparents – are finding they want, or need, to support their children even into adulthood. The biggest outlays are likely to be university fees, which can run into tens of thousands, plus living costs for students who are away from home.

A recent UK survey found that parents are contributing £360 a month to support their children at university, with some forced to take a second job to help with students’ rent and food bills.[3]

The affordability gap between the ‘baby boomer’ generation and their children is at a critical level, and in Canada for example, it now takes the typical person 13 years to save for a 20% deposit on a house, compared to five years when their parents started out as young adults in 1976, according to a report by Generation Squeeze[4].

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Another UK study found that parents are giving their children an average of £24,100 to get them onto the housing ladder – making the ‘bank of mum and dad’ equivalent to the UK’s 11th biggest mortgage lender[5].

A different way

With cash returns arguably still negligible, given the prolonged environment of ultra-low interest rates, parents and guardians may need to think differently.

AXA IM’s consumer survey, Voices, found that too many people are relying on cash. For example, in the UK just 24% of people have an investment product of some sort. In Italy, this falls to 22% and to an even lower 10% in France. It’s perhaps no longer a case of ‘the bank of mum and dad’ – but ‘the asset manager of mum and dad’.

People need to plan-ahead financially more so than ever before and aim to grow their assets over a longer period. Investing with the aim of a steady income stream and consistent returns, in a highly unpredictable environment, is not easy.

But naturally if investing for your children’s future, would you put all your eggs in the same basket? Most parents would want to take a less risky approach.

That’s why an actively-managed multi-asset strategy can potentially help investors achieve their long-term objectives.

Multi-asset strategies allow for greater diversification, which can help protect against volatility. Portfolio managers can move to be overweight or underweight different assets, according to prevailing market conditions, across a wide universe of assets.

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Multi-asset funds combine the most attractive qualities of multiple asset classes, which could help investors reach their financial outcomes such as capital preservation, capital growth or income. They can also aim to hedge portfolios against specific risks and events.

Cash vs. markets – and thinking long term

While past performance should never be viewed as a guide to future returns, the comparative performance between saving and investing over recent years is stark. For example, over the past five years, global government bonds have achieved an annualised return of 7.95%, as measured by the JPMorgan Global Government Bond Index[6]. Meanwhile, global equities have achieved an average annual performance of 13.3% over the same period, based on the MSCI All Country World Index[7] – cash wouldn’t have come close.

But equally investing should always be approached with a long-term mindset – and ideally the earlier investors – and parents get started – the better. For instance, assuming average annual growth of 4%, if the asset manager of mum and dad started investing $100 a month when their child was born, by the time they reach age 18 years of age, their kid’s pot would be worth $30,977[8] – potentially giving them a considerable start in adulthood.

What is certainly clear, however, and no matter what investment route parents take, the sooner they act the better. And the diversification benefits of multi-asset strategies could potentially be one way to ride the market for the long-term and help them overcome the financial challenges of tomorrow.

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[1] $233,610 – US Department of Agriculture, 2017 https://www.fns.usda.gov/resource/expenditures-children-families-reports-all-years

[2] £231,843 – Liverpool Victoria/ Centre of Economic and Business Research, 2016 https://www.lv.com/about-us/press/cost-of-a-child-2016

[3] Source: Which? July 2019 https://www.which.co.uk/news/2019/07/parents-skipping-holidays-to-support-their-child-at-uni/

[4] Source: Straddling the gap, Generation Squeeze, June 2019 https://www.gensqueeze.ca/straddling_the_gap

[5] Source: Legal & General/CEBR June 2019 https://www.legalandgeneral.com/existing-customers/bomad/

[6] Source: FactSet, Morningstar, FTSE, Bloomberg, as of 30 September 2019, gross total return in sterling

[7] Source: FactSet, Morningstar, FTSE, Bloomberg, as of 30 September 2019, gross total return in sterling

[8] Based on investor.gov compound interest calculator, interest compounded annually