Saving for your child’s future
Even when times are tough I put money aside for the boys. As the years progress things are getting more and more expensive, things like university, car insurance or buying a first house. Any nest egg we can provide for them will be a great help when they reach a certain age. They current have a Junior ISA each and regular easy access savings accounts.
Equilibrium has pulled together a fabulous guide to help young families plan better for the future, here are some things that you might want to consider.
We all want our children to be financially secure when they grow up. Luckily, there are things that parents can do today that can make a real difference tomorrow. From choosing a suitable savings vehicle to starting a pension early, there are plenty of ways to get the ball rolling.
Not only does saving for your child give them a great start to their adult life, it also teaches them important lessons about money, especially the rewards of saving. By putting money away for your children from an early age, you are setting a great example and hopefully laying the groundwork for a lifetime of sensible saving.
There are lots of savings vehicles to choose from, it’s just a case of picking the one best suited to you and your child. A Junior ISA (JISA) is a particularly popular option. They are available for children who live in the UK and are under the age of 18 and are, effectively, tax-free, long-term savings accounts for children. They are very useful for building up a substantial pot over long periods, such as throughout your son or daughter’s childhood. For the 2017 to 2018 tax year, the savings limit for JISAs is £4,128.
You have the choice of two types of Junior ISA, a cash JISA and a stocks and shares JISA:
- A cash Junior ISA is a tax efficient savings vehicle, which allows your child to receive tax free interest on the cash saved. The interest rates and returns will vary depending on the institution offering the cash JISA.
- A stocks and shares Junior ISA aims to provide a tax efficient investment with the potential for capital growth in the medium to long term. The cash within the JISA can be invested into a wide variety of funds, with no tax paid on any dividends or capital growth received. Funds invested within a Stocks and Shares JISA are at risk, as there is the possibility that the value of the funds could go down as well as up, meaning that you may not get back the amount invested.
Children’s savings accounts
Children’s savings accounts offer a popular alternative to Junior ISAs and are seen by many as a great way of getting children into good savings habits. A child can, for example, begin managing their own account once they turn seven. A parent can set up an account with a bank or building society on behalf of their child, and certain providers will encourage this by offering gifts. These gifts are often geared to encouraging a child to save; for example, a money box can show the benefits of putting a little aside every so often.
Another option is children’s bonds. While the child owns the bonds, it is only their parent or guardian who can buy them, and it is they who hold the bonds until the child reaches 16. Bonds represent a long-term, tax-free investment and allow parents to have more certainty over the return their child will receive. However, they may not be suitable if your child wants control over their money, nor if they want early access to it, and with this being an investment you might not receive back the amount you invested originally.
Starting a pension
It may seem odd to be thinking about starting a pension at such an early age; however, doing so can be a good way to build up a substantial savings pot for much later life. While this might not appeal to everyone, it is certainly not unheard of and is sometimes a preferred option among parents who do not want their children to have access to their money at the age of 18. It might therefore be suited to those with an eye on a long-term approach to financial planning. Whilst capital will be at risk, this can be mitigated by the length of the investment, as the earliest a child can access their pension is 55, meaning that volatility or loss in the short term will have less of an impact.
Whatever savings vehicle you choose, be sure to do the necessary research beforehand. While some options may work for one family, they may not be suitable for another. Just remember that whatever you begin to put away now, no matter how little, can make a big difference further down the line.
Equilibrium’s Guide to Wealth Management for Young People is aimed at people aged 25 to 40 who are looking to plan their finances now to help their family in the future.
This is a collaborative post.