Building a nest egg for your children
The thought of your child leaving home and having to fend for themselves is one that fills some parents with worry. Whilst others may greet this change with a fist pump and a flick through a stack of holiday brochures!
Will your kids be able to buy their first home or car? Do you think they will manage their own personal finances with confidence?
When you think about how expensive it is to live in this world, it makes sense to think about putting some money aside to give your child a head-start in life. Whether they use it for university fees or buying their first car or home, saving regularly now can help to build up a nest egg for when they really need it.
Higher savings - Almost half of UK adults* said they had saved or invested money for a child or grandchild under the age of 18 in the last five years. The most common way of saving is into children’s bank savings accounts, despite the interest rates being near record lows. 14% used another way of saving such as a Junior Individual Savings Account (ISA). The advantage of ISAs is that any returns will be tax free.
Long term savings - Junior ISAs can hold stocks and shares as well as cash savings. As the money is tied up until their 18th birthday anyway, taking a long-term approach could allow your child’s money to grow more than it could if kept in cash. However, there is always some degree of investment risk.
Further Education - 40% of parents who have saved for their children said they don’t mind how the money is spent but would prefer it spent in a certain way. 35% said they hoped it would cover the costs of further education. But once the child reaches 18 they will be able to spend their savings how they see fit… you have been warned!
Financial confidence - 32% of those surveyed would be more likely to save for their child or grandchild if they knew the child could manage money responsibly. Others take a harder line with 17% saying they would be more inclined to save for a child if they were in control of how the money is spent. 22% said they would prefer it if the money could only be accessed at 21, not 18.
A wonderful gift for your child’s future
Saving for a child today is a wonderful gift for their future. Not only can they start their adult lives with some savings, but getting them involved with saving early also helps them learn important money lessons.
Currently only parents or guardians can open a Junior ISA for a child. If the Government changes the policy and also enables grandparents to open a Junior ISA for the child, then 31% of grandparents are more likely to save or invest for their grandchildren.
When you are considering investing through an ISA, it’s important to remember that ISA tax rules may change in the future. The tax advantages of investing through an ISA will also depend on your personal circumstances.
*Survey of 2000 UK adults conducted for M&G in October 2016.