If you want to give your child a financial head start in life, paying into a Junior ISA (or 'JISA', as they're also known) could help. That's because they let you save and invest for your child without paying tax on any profits they make.
But with any money you pay into one being locked away until your child turns 18, is it a good idea to tell your child about theirs before they can access it?
How do Junior ISAs work?
There are two types of Junior ISAs: Junior Cash ISAs and Junior Stocks & Shares ISAs. The former lets you save for your child, and the latter allows you to invest their money.
Unlike an adult ISA, where you can open a new one every tax year, your child can have just one Junior Cash ISA and one Junior Stocks and Shares ISA account throughout their entire childhood. They could have one or the other, or one of each.
Although Junior ISAs could be a great way to build a nest egg for your child, they do come with some rules. For instance, the amount you can pay into Junior ISAs for each child is limited at £9,000 per tax year. This is the Junior ISA allowance for 2023/24, and it could change in the future.
The way you use it is completely up to you. You can either put everything in one Junior ISA, or split it up between a Junior Cash ISA and a Junior Stocks and Shares ISA. Either way, you have until midnight on the 5th of April each year to use it.
Another thing to keep in mind is that anything in a Junior ISA is locked away until your child reaches adulthood, and nobody can dip into their savings – not even their parents. However, once your child turns 18, they’ll gain full control over the account and be able to decide what to do with their money.
But with the money being safely tucked away for a while, should you keep it a secret from your child until they're older? Here are some things to consider.
Should you tell your child about their Junior ISA?
It's completely up to you and we can’t really help here. But all we can say is that, realistically, you will have to tell your little one about their Junior ISA at some point. After all, it’s their money, and they will be legally entitled to it when they turn 18.
But we understand that there are reasons why you might want to keep quiet about it until they're old enough to make a mature decision about what to do with the money. If you tell a 10-year kid they’ve got £7,000 tucked away in a savings account, for example, they could get overly excited and may want to use it to buy sweets, video games, or clothes.
At this age, it’s hard to think long-term, and the idea of owning a home, or going to university may not be very appealing yet. So, before the big reveal, it could be worth discussing financial goals with them and explaining the difference between short-term and long-term. But again, it’s all up to you!
Benefits of telling your child about their Junior ISA
Telling your child about their Junior ISA when they're still young could come with many benefits. After all, it might present you with a great opportunity to introduce them to saving and investing.
Funnily enough, children aren’t always taught much about money management at school, and many will learn about it through their parents and pick up their spending and saving habits. So, you’ve got to set the right example and show them how it’s done.
A Junior ISA can help you start the conversation. If you tell them about their account, you can go into more detail about why people save and invest for their futures. Plus, you’ll also have the possibility to show them how their money is performing over time, giving you the chance to discuss how things like interest and investment returns work (depending on the type of Junior ISA they have).
And if you talk about what happens to the account after their 18th birthday, it’ll give you a chance to help them start thinking about their long-term goals. Obviously, you can’t tell them what to do with the money, but you can could encourage to think about their future and maintain good savings habits.
When is a good age to tell your child about their Junior ISA?
There’s no perfect age to tell your child about their Junior ISA. However, as a rule of thumb, the sooner you talk to them about it, the more time they'll have to understand the notion of saving and investing, as well as plan for their future.
After all, if you want your child to make the right financial decisions in future, it could pay off to start the conversation as soon as they’re able to understand the concept of money.
Young kids are like sponges – they soak in information very quickly and easily. So, telling yours about their Junior ISA at a young age, and keeping them updated with how their money is performing, could do wonders for their financial future.
Alternatively, if you decide to tell them when they’re 16 (when they won't be able to withdraw money from the account, but will gain control of the Junior ISA), you’ll have less time to ensure they’re being responsible with their money.
At the end of the day, putting money aside for your child could be a great way to give them a financial head start in life, but it’s also important to give them the knowledge and tools they need to manage it effectively and make the right decisions for them. So, no matter when you tell them about their Junior ISA, consider making it a priority to teach them about money from a young age.
References:
2: https://www.themoneypages.com/saving-banking/tell-child-junior-isa/
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.
Wealthify does not provide financial advice. Seek financial advice if you are unsure about investing.
