You may think that your children are quite expensive enough, without setting aside cash for them later in life. However, wanting to help them to get ahead is a powerful force which we all play out in our own different ways. Doesn't mean that helping them build a deposit for a home or save for their living expenses at university is something we have to do and God knows I'm NOT in the business of trying to make parents feel guilty or telling them what to do! BUT if you're able and willing to set aside a bit for the kids every month, then here are some ideas.
Junior ISAs are one of the better options for building up a savings pot for your children, and it is worth starting when they are still young and faintly cute. You can save up to £4,128 per year (for the tax year 2017/18) on their behalf and anyone can contribute to a Junior ISA, including grandparents who would otherwise buy plastic presents which take up even more space you haven't got, to those fantastically wealthy godparents you’ve chosen.
They enjoy all the normal advantages of ‘proper’ ISAs: income and growth on the savings and investments held within the ISA wrapper accumulates tax free; it also means that anything paid out – such as interest or dividends from shares – is largely tax free.
There are lots of different Junior ISAs on offer, and the most important decision to make is what you want to put in it- cash, or stocks and shares. Although cash is often the preferred option when saving for children - about 60% of money paid in last year went into cash - you should bear in mind that you have a long time to ride out the ups and downs associated with the stock market. Interest rates for cash are still very low and the stock market has historically provided better long-term returns, and therefore protection against inflation. I'd go as far as to say that saving into cash for a very young child (in this thing which they won't access till they're 18) doesn't make much sense.
Contributions can start from just £25 per month. Junior ISAs are available from the major banks, online stockbroking groups such as Charles Stanley and platforms such as Hargreaves Lansdown or Alliance Trust Savings. In general, you’ll have more choice with the stockbrokers or the platforms than with the banks, which may only offer cash options and a limited range of investments.
For a cash ISA, the interest rate will be the most important consideration. Picking the right option for a stocks and shares ISA is more complex, but check out our Best Buys for who we rate.
So far so good, but there is one key problem with Junior ISAs – while the parents are custodians of the cash until the child reaches 16, they then have to hand it over. The child becomes fully entitled to the money at age 18 and is then free to do with it as they will. You may have an angelic 18-year old, but history suggests that teenagers and large amounts of money aren’t always a happy mix.
You have a number of options: You can lie, of course, and just not tell them about the cash till they get a bit more mature, but we couldn’t possibly recommend that. You can point out that if they spend it in their first term at university, that’s a lot of bar-work they have to do to in the subsequent three years. Either way, you’ll need to get your story straight.
However, it shouldn’t negate the very real advantages of Junior ISAs. From £25 per month, you can buy at least thirty seconds of gratitude from a surly teen and the warm and fuzzy feeling that one day – perhaps – they will realise that you did them a bit of a favour. And put you in a nicer care home ;0)
You know when you’re a Tired Parent. You fantasise about sleep. And you hum CBeebies tunes in the supermarket. Probably in your 30s or 40s with a little one at home, we can help with the most immediate financial to-do list.
Life insurance. Wills. Junior ISAs.