Every parent wants what’s best for their children, but giving them a financial head-start in life is no easy task, especially when day-to-day costs can really add up! Here are some tips to help you boost your child’s financial future.
The key to building up a significant nest egg for your children is to start putting money aside as soon as possible after they’re born. Successful saving and investing is as much about the length of time you can save for, as how much you can afford to put aside. Starting today with a small regular sum (say, £20 per month) is far more important than waiting for the ‘ideal’ time. Whatever you can afford, start today. Set up a monthly Direct Debit and forget about it. This way, you’ll build up a good pot of cash before you know it. And as soon as you get going, your child’s money will begin benefiting from the power of compounding – earning interest on top of your interest. It’s a bit like how a snowball rolling down a hill gathers more and more snow, growing more quickly the longer it rolls.
When time is on your side, it’s a good idea to consider the ways in which your money will have the best chance of good growth. Cash savings are good for short-term squirreling and are easily accessible, but interest rates are low, meaning your child’s savings might not grow as much as they could. If you’re putting money aside for your children’s future, investing could also be worth a look. Over the longer term your money will have the opportunity to benefit from potential market growth and compound returns. Historically, investing has delivered better returns than saving over the long run. A Barclays study found that over any 10-year period in the past 115 years, shares have outperformed cash 90% of the time1.
1: Barclays Equity-Gilt Study: Source Telegraph: https://www.telegraph.co.uk/finance/personalfinance/investing/11477122/Historys-lesson-for-Isa-investors-Barclays-Equity-Gilt-Study-2015.html
Open a Junior Stocks and Shares ISA
If you’re choosing to invest in your child’s future, you can choose to do it in a tax-efficient way with a Junior Stocks and Shares ISA (JISA). Introduced in 2011 to replace Child Trust Funds, Junior Stocks and Shares ISAs are a great way to give your child’s money more chance to flourish. The child ISA limit for 2018/19 was set at £4,260, then it went up to £4,368 in 2019/20. The current JISA annual allowance is £9,000. With a Junior ISA, your child doesn’t pay tax on any earnings they make, so they can keep more of their potential gains. Also, everything you put in a Junior Stocks and Shares ISA belongs to the child, meaning you can’t dip into your kids’ savings, however tempted you might be. When they turn 18, their Junior Stocks and Shares ISA will automatically turn into an adult ISA, at which point they can decide whether to keep saving or investing it, or put it towards university, travelling, or whatever exciting adventure they have in mind.
Figures in this blog are based on past performance and past performance is not a reliable indicator of future results.
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.