Interactive Investor

Student inflation: cost of rent and food jumps by 7% over past year

Pressure is mounting on the Bank of Mum and Dad, says Myron Jobson, who explains how Junior ISAs can help.

27th June 2024 10:13

by Myron Jobson from interactive investor

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University students
  • interactive investor has compiled a basket of 19 goods and services to gauge how the cost of living has risen for students over the past year to the end of May 2024
  • The categories on the list that have seen the greatest rise in inflation in percentage terms are broadband, private rental and bus and coach costs
  • A Junior ISA can be used to cover the ballooning cost of university. The average value of a Junior Stocks and Shares ISA on ii is £20,202 at maturity.

With the A-level exam season almost over, many Year 12 students will now shift focus to planning for life at university. While headline inflation has come back down to the 2% target, students have faced a higher-than-average cost of living over the past year, new interactive investor analysis finds.

Using the latest Office for National Statistics (ONS) inflation data and assumptions on the average student living cost by Save the Student money guidance website, ii calculates that there has been an 7% increase over the past year to the end of May 2024 in the two biggest categories of expenditure: the cost of rent (from a private landlord) and food (including non-alcoholic drinks).

This calculation is on a weighted basis - skewed to the cost of rent. 

Other costs, from a list of 17 goods and services, including the cost of internet, mobile phone contracts, books and hobbies are up by 3.65% on a mean average basis. This outstrips the 2.8% rise in the maximum student maintenance loan in the 2023-24 academic year.

The categories driving up the cost of living for students

The categories on the list that have seen the greatest rise in inflation in percentage terms are broadband - categorised as internet access provision services - private rental and bus and coach costs, up 10.4%, 8.7% and 8.4%, respectively.

The largest downward contribution to the annual inflation rate came from energy– inclusive of electricity, gas and other fuels – with prices down 15.9% on an annual basis.

The cost of student essentials also saw significant percentage increases: the cost of books rose by 6.3%, while the cost of telephone and telefax equipment (which includes the cost of running a mobile phone) grew by 3.5%.

The cost of going out also grew – with dining at restaurants and cafés up 5.9% over the period, while the cost of recreational and cultural services, which includes the cost of going to the cinema, concerts and attending a sporting event grew by 6.5%.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The need to maintain financial resilience has robbed students of the university life they envisaged. This threatens to be a never-ending story for future generations as the cost of university continues to rise. The spiralling cost of living at university is a significant concern that threatens to have an adverse impact on students' academic performance and mental health.

“As accommodation, food and transport costs continue to rise, many students are compelled to take on part-time work to make ends meet. This juggling act often comes at the expense of their studies, leading to heightened stress and diminished academic performance. The financial strain is particularly severe for students from less affluent backgrounds, who face greater challenges in affording essential resources like textbooks and technology.”

Bank of Mum and Dad 

It is important to remember that falling inflation doesn’t mean that prices are falling, but that, on average, they aren’t climbing as quickly. For students, it means that the cost of university continues to spiral.

Myron Jobson says: “With the cost of living at university set to grow over the years, the stark reality is that many of the next generation of students will be relying on the Bank of Mum and Dad to financially support them.

“However, parents have not been immune from the rising cost pressures in recent history. Mortgage rates have risen to levels far higher than what we became accustomed to in the post-financial crisis era, and household budgets are still reeling from the biggest cost-of-living crisis in generations. As such, many parents simply won’t have the cash to support their children much, if at all.

Junior ISAs and university costs

Supporting your child's journey through university can seem daunting, but with some forward planning and smart money management, it can be achievable.

Since Junior ISAs are designed to provide financial support for a child’s future, they can be used to cover the ballooning cost of university education or saved and/or invested to foot costs or hit financial goals further down the line.

The average value of a Junior Stocks and Shares ISA on ii is £20,202 at maturity, while the average undergraduate debt after a three-year course is closer to £50,000.

Recent analysis of JISA accounts on ii, which mature when the account holders turn 18, showed that adult children manage their JISA funds in different ways. 

Over the 12-month period, 46% contributed an average of £7,012 - net of withdrawals. Conversely, 42% made withdrawals (net of contributions) averaging £6,728 – which might have been used to fund university costs, a gap year or the purchase of a car, for example.

The contribution/withdrawal split remains largely unchanged after two years, but the values increase – mainly because they factor in contributions/withdrawals made in year one. £9,798 is the average net withdrawal made across two years, which is slightly higher than the average net contribution made over the period (£9,442).

Myron Jobson says: “A Junior ISA is a great way to give your child a leg-up when they reach adulthood, which could be used to help fund the cost of university. Given that most JISAs are going to be inherently very long term, opting for the stocks and shares option for the potential of inflation-beating returns that far outstrip those of conventional savings accounts over the long term, could be the best option. Even small, regular contributions can accumulate significantly over time thanks to compound interest.”

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