Investing isn’t just for adults. Kids can get in on it too, but they’ll need the help of a parent or guardian to get started. That’s because most investment accounts will require someone aged 16 or over to open it. But just because it’s an adult that opens it doesn’t mean it isn’t the child’s investment.
How does investing for children work?
If you choose to invest in a Junior Stocks and Shares ISA, then the account – and all the money in it – will belong to your child, but it will need a parent or guardian to open and pay into it. You can choose to take a DIY approach, picking the investments yourself, or take the robo-investing approach and leave the decisions to experts who carefully research and build diversified investment portfolios for your little one.
Whichever route you take, those investments will be held in your child’s name, and the money won’t be able to be accessed by anyone until they turn 18 – at which point it becomes theirs. Now, this can be quite daunting for some parents, not least because you’ll start thinking about your baby being a grown-up, but also because you’ll want to make sure that they use the money well. This is why it’s important to teach your child about money management.
Why invest your children’s money?
Children are – by definition – young people, which means that they have the benefit of having time on their side, letting them take advantage of long-term investing. In fact, you could open a Baby ISA for them as soon as they’re born (it’s actually a Junior Stocks and Shares ISA, but baby ISA sounds more appropriate when they’re really little) which they wouldn’t be able to access until they’re 18. That means that you could give their money 18 years of potential.
Say you put £100 into their plan to open it, then pay in £100 each month until they reach 18, your child could have an investment account worth £29,901. That’s a huge sum to start their adult life with. It could go towards further education, buying a home, setting up a business, space travel… the possibilities are endless!
If you choose to put this money in a savings account instead, then you may want to find somewhere that pays higher interest than the current rate of inflation. Without this, you’re likely to find that the amount you’ve saved for them won’t buy the same amount that it could have. Investing gives you the potential to beat the rate of inflation by not tying your money down to a single source of interest.
What’s the best way to invest for my kids?
Best is subjective, and what really matters is what works for you. Luckily, there are plenty of different options available. As we mentioned above, you could take a DIY approach. This would give you complete control over what your child is invested in, letting you pick individual stocks and balance their asset allocation in a way that you think works well for your child’s needs. If you know what you’re doing and have the time and inclination to do the research, buying, selling, and balancing of your child’s investments, then the DIY route may be right for you.
But that isn’t the only option available when investing for your kids. You could choose to use a robo-investor, which means that you don’t need to know the ins and outs of how the stock market works. Robo-investors, like Wealthify, uses a combination of smart algorithms and clever people to make the decisions. This means that you aren’t just leaving the machines to manage your child’s investments, real people are working hard behind the scenes at well. If you choose to invest in this way, then all you’ll need to do is decide how much you want to save for your child, what kind of investment style is right for you, and whether you want to invest ethically. It’s as simple as that.
1. This is the projected value for a Confident Plan (Medium Risk Plan). This is only a forecast and is not a reliable indicator of future performance. If markets perform worse, your return could be £23,263. If markets perform better, your return could be £38,107. Values correct as of 14/08/2020
The tax treatment depends on your individual circumstances and may be subject to change in the future.
Please remember the value of your investments can go down as well as up, and you could get back less than invested.