Should I invest for my child’s future with a Junior ISA?
In a world of soaring costs, expensive university fees and eye-watering house prices, parents would do well to invest in their children before they enter adulthood.
Parents surveyed by the Be Clever With Your Cash money site last year said that they were putting £750 a year for each of their children, while their kids had £4,001 on average in their accounts. Sixty-five per cent of parents had set up a savings account for their children.
Parents looking to build a nest egg for a child have a number of factors to think about.
“The starting point should be to consider what the investment time frame is,” says Stuart Gibbs, financial planner at Prydis Wealth.
The current age of the child and the purpose of these investments, such as meeting private school or university fees, building a deposit for a first home, or even a retirement fund, will influence which investment vehicle to go with.
“The next step will be to consider how much you are looking to put away, since some vehicles will have annual funding limits,” Gibbs continues. Parents should also think about the point at which the child will have access to their money.
What are my choices?
Parents have an array of financial products to choose from, including:
- Junior ISAs: A tax-efficient way to save, as returns are exempt from capital gains tax and income tax. Parents can choose from stocks and shares ISAs, as well as cash ISAs, and their child will have control over this account from their 18th birthday.
- Savings accounts: These offer a simple and low-risk approach for building wealth for a future date. Children will typically gain access to these accounts when they turn 18.
- Stakeholder pensions: Junior pensions provide a way to save over a very long-term horizon
- Premium Bonds: Children under 16 can hold Premium Bonds, although someone will need to be nominated to oversee these bonds until they turn 16
- Trusts: These can be used for larger sums and to maintain control over capital, although can be complex and require ongoing management
- Traditional stocks and shares: Targeting returns in excess of cash
Joe Akik, wealth manager at Capital Planning Partners, believes that the essence of financial planning for children is “less on the money and more about training the behaviour”.
“When it comes to things like kids’ Junior ISAs…[parents] don’t need to put a massive amount away,” he says. “It’s hard for them to understand that just putting away something like £100 a month really adds up.”
Parents can invest up to £9,000 a year in Junior ISAs. Hargreaves Lansdown*, AJ Bell, Fidelity and interactive investor* all offer Junior ISAs.
“I’d always do Junior ISAs that are invested in stocks and shares, just because it’s got the potential to grow so much,” Akik says. “If you have a newborn and you’re opening an account like that for them, it’s got 18 years to be invested, so you can actually take quite a lot of risk with it.”
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