As parents, we want what’s best for our children, and we want to give them most prosperous and financially sound future as possible. But that’s not all. We also want them to live in a better and fairer world. The good news is that you don’t have to choose between the two – you could build your child a nest egg for the future and help make the world a better place at the same time through something called 'ethical investing'. Here’s how it works.
Consider investing in an Ethical Junior ISA
If you want to plan for your child’s future, paying into a Junior Stocks and Shares ISA could be a great way to start. But how does it work, you ask? With a Junior Stocks and Shares ISA, you can invest up to £9,000 per year (subject to change) - this is your child ISA allowance. The Junior ISA limit for 2019/20 was set at £4,368 but it increased in the new tax year (2020/21) and remained at £9,000 for 2021/22.
If your child has a Junior ISA, they won’t need to pay UK tax on any profits they make, meaning they’ll get to keep more of their money. Also, everything you put in a Junior ISA is locked away and nobody, not even you, can dip into your child’s savings. That way, their money can work harder. Once they turn 18, your child will gain full control over their pot and they’ll be free to decide what to do with it. At the same time, their Junior Stocks and Shares ISA will automatically turn into a Stocks and Shares ISA, giving your child the opportunity to continue their investment journey.
The good thing about holding a Junior ISA is that you can make it ethical. It might come as a surprise for many, but you don’t need to sacrifice any of your values when you invest. It’s possible to put your child’s money to work whilst driving positive change in society. With an Ethical Junior ISA, your child’s money will typically be invested in companies that are striving to have a positive impact on the environment and society. Depending on your Junior ISA provider, certain activities will be excluded from your child’s plan. For example, at Wealthify, our Ethical Junior ISAs aim to screen out any company involved in harmful industries, like weapons, adult entertainment, tobacco, and gambling.
How to open an Ethical Junior ISA
Opening an Ethical Junior ISA is easy. With digital investment platforms, like Wealthify, the hard work is done for you, and all you need to do is choose how much to invest and the risk level that suits you and your child. We’ll do the investing for your child, from building their Ethical Plan to keeping it on track. Choosing the right investment service is no easy task though which is why when it comes to opening an Ethical Junior ISA, it could be a good idea to shop around and compare what providers are offering. So, when doing your research, one thing you might want to look at is the ethical strategy of the service you’re checking out.
Most investment platforms will use ethical funds – think of them as hampers full of sustainable investments. Most funds will carry out negative screenings where harmful activities are removed from the selection, and exclusion policies will typically vary from one fund to another. Many funds will also perform positive screenings by seeking out companies committed to doing good. Typically, they’ll look at a large range of things like how many carbon emissions are being produced by a company, how well its staff are being treated, and how transparent it is when reporting to the public. Each company will get a score based on how they’re impacting the environment and society as a whole. But to be included in an ethical fund, companies don’t necessarily need to do everything perfectly. Some funds will also include companies that are working hard to change their practices and improve their ethical standards.
If you’re looking for an investment platform, it’s important to consider what types of ethical funds they’re using. Some investment services, like Wealthify, will use active ethical funds to build their plans. With active funds, there’s typically someone who’ll be conducting extensive research and due diligence to ensure every investment in the fund is truly sustainable. Also, with active ethical funds, there’s room to push for change as fund managers can use their shareholder voting power to influence how a company operates. Other investment services will use passive ethical funds. Whilst they’re generally cheaper than their active equivalents, they tend to use fixed scoring systems that offer less flexibility during the selection process. Also, with passive ethical funds, fund managers are unable to exert their power to drive positive change.
Whatever option you choose, paying into an Ethical Junior ISA for your child could give their money the potential to grow tax-efficiently whilst contributing to building a better future for generations to come.
The tax treatment depends on your individual circumstances and maybe 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.