When you think of investing for kids, what’s the first thing that springs to mind?
Collecting and selling rare trading cards for a profit?
Using pocket money to set up their first side hustle?
Or maybe it’s something more straightforward, like finding the best Junior ISA?
If you’re reading this, chances are you’re looking for more information on that third option (which is just as well, really, because we can’t help with the first two).
In this article, we'll explore everything from why to when you might start investing for your little one — and how, with Wealthify, the whole process is child’s play.
Reasons to invest for your child
It doesn’t matter whether you’re looking at Junior ISAs (JISA), Junior Self-Invested Personal Pensions, or Premium Bonds; investing for kids comes with plenty of benefits.
For the sake of this article, we’ll concentrate on the benefits of a Junior Stocks and Shares ISA, as this is what we offer at Wealthify. This type of JISA differs to a Junior Cash ISA, where your child’s money earns interest based on a rate set by the provider.
1. A brighter future
Nobody knows what tomorrow brings, let alone what your child will want from life when they head into adulthood. With that in mind, investing from an early age is a commitment to their long-term financial stability and, more importantly, a brighter future.
After all, it doesn’t really matter how much the eventual lump sum is worth.
What matters is the fact you created something to help your child achieve their eventual dreams, whether that’s university, travelling, buying a property, or something else.
2. Beating inflation
Putting money into a savings account for your child guarantees future income; you earn interest, and the money typically grows at the rate your bank is paying you.
But every time the interest rate goes below the rate of inflation, the value of your child’s savings falls.
In other words, their money could be growing at a slower pace than everything else, with them losing purchasing power in the process.
However, with investment accounts for kids – such as Stocks and Shares Junior ISAs – the money is invested in stock markets and assets. As a result, you’ll have more choice and control overgrowth, which could lead to higher returns than a savings account.
As with all investing though, you could also get back less than you put in.
3. Compound interest
Even if you just stashed a small amount of money under a mattress every month, the earlier you start doing it, the more they’ll end up with.
But here’s the thing about investment accounts for kids: the earlier you open one and start contributing, the more time their money has to take advantage of something called compounding.
In simple terms, compounding is where any money you make on top of your original investment is invested back into your account. Think of it as a financial snowball effect — one that could lead to even more growth and money for your child in the future.
Things to consider
As we’ve already mentioned, investing for kids comes with the caveat that the value of your money can go down as well as up. The rollercoaster nature of stock markets is a result of ongoing economic, political, and societal factors; the longer you stay invested, the greater chance you have of riding out this volatility.
Thankfully, one of the best Junior ISA benefits – and something else to consider – is that you have plenty of time to overcome the downturns: up to 18 years, in fact.
Why so long? Because Junior ISAs mean the money belongs to the child — and they can only withdraw it when they turn 18.
Types of investing
The money you put into a Junior Stocks and Shares ISA is used to purchase different types of investments.
At Wealthify, for example, our Junior ISAs invest your money using a number of funds.
Containing a collection of investments – including shares, bonds, property, and commodities – funds provide a convenient, cost-effective way to balance your investments. A crucial part of any long-term investment strategy as it helps spread your risk, this balance is also known as diversification.
With Wealthify, you can also invest ethically.
Our ethical funds focus on the Environmental, Social, and Governance (ESG) credentials of companies. These funds exclude industries and activities considered harmful to society and the environment, such as tobacco, gambling, controversial weapons, and adult entertainment.
As a result, ethical investing for kids can not only help guide their money in the right direction, but their moral compass, too.
Junior ISAs
Now you know some of the benefits and basics of how investing for kids works, it’s time to take a closer look at the part we specialise in: Stocks and Shares Junior ISAs.
As things stand, you can currently deposit £9,000 per tax year into one — a figure known as the Junior ISA allowance. What’s more, there’s no tax to pay on any returns, meaning your child gets to keep (and spend) more of the money when their 18th birthday finally arrives.
And just in case you were wondering, because the £9,000 Junior ISA allowance belongs to the child, it doesn’t affect your own annual adult allowance of £20,000.
We’ve already touched on how, thanks to their tax efficiency and the power of financial markets, Stocks and Shares Junior ISAs could help your child’s money beat inflation.
But another way Wealthify’s Stocks and Shares Junior ISAs help your child’s money grow?
Contributions from other people.
That’s right, our JISA lets family and friends add money to their account, making it the perfect gift for birthdays, holidays, or special occasions.
Although it might seem like a bit of a contradiction, there’s more to investment accounts for kids than just making money; it’s a great way to teach them about it, too. Whether it’s helping them understand financial growth or taxation, Junior ISAs create opportunities to have invaluable conversations about money.
Wealthify: Best Junior ISA six years in a row
When we say we’ve got the best Junior Stocks and Shares ISA on the market, you could be forgiven for thinking we’re a little biased.
We do have the awards to back it up though — six of them (and counting), in fact!
Voted Best Junior ISA at The Personal Finance Awards, six years in a row, our award-winning JISA is the tried-and-tested, tax-efficient account that helps you save up to £9,000 per tax year for your child.
And, because Wealthify is owned and backed by one of the UK's largest financial institutions, Aviva, it’s the account you can trust, too.
Whether you’re ready to start investing for your little one or want to explore things further, why not check out our dedicated Junior ISA page below?
With investing, your capital is at risk, so the value of your investments can go down as well as up, which means you could get back less than you initially invested.
Wealthify does not provide advice. If you’re not sure whether investing is right for you, please speak to a financial adviser.
