Worried about… Saving for your children’s future?

Many of the children of Generation X and Millennials have never experienced rising interest rates, high inflation and the increased cost of living. Now, more than ever, parents are looking for ways to provide their children with a financial ‘buffer’ against an uncertain economic climate.

A survey which was carried out on 2,000 UK adults with children under the age of 18 shows that around 20% of UK parents are currently saving for their children’s future and over three quarters plan to save for their children¹.

The highest amount parents spend on helping their children, goes towards buying their first home with 54% of those planning to contribute stating they would give £10,000 – £30,000. This was followed by helping with higher education, with 43% saying they will give between £1,000 and £3,000 per year towards the cost of university or college. Just under half (42.8%) of parents helping with a wedding pledged to spend £1,000 – £5,000, but 27% of parents surveyed plan to spend £5,000 – £15,000. Nearly half of all parents confirmed they were planning on helping towards the cost of a first car, averaging out at around £1,900².

With over one third of parents (35%) planning to save over £15,000 for when their children turn 21, where do you begin?³

Start saving early on

Opening a savings account for your child with a bank or building society is a great way of building up funds and teaching your child how to save money. Every £10, £20, or £50 given for birthdays and Christmas can be deposited into the account which will soon build up. However, there may be tax to pay on certain accrued interest, which will be yours or your spouse’s responsibility.

Junior Cash or Junior Stocks and Shares ISA (JISAs)

Junior ISAs are a type of savings account for under-18s which are tax-free. A Junior ISA means tax does not need to be paid on interest accrued. A Junior Stocks and Shares ISA means the money is invested and capital growth is exempt from tax.

Anyone can contribute towards Junior ISAs but the annual limit for money paid in is currently set at £9,000⁴. Your child cannot access funds accumulated until they reach 18, however they can take control of the account when they are 16⁵.

National Savings & Investments (NS&I) Children’s Bonds

These types of bonds can be set up and bought by parents and extended family such as grandparents and guardians. If you are a godparent or friend, you can buy Premium Bonds, but NS&I may ask for certain details from you. Returns at fixed levels of income are guaranteed for five years and the returns are exempt from tax.

Provide a pension

A Junior Self-Invested Personal Pension (SIPP) follows the same principles as an adult’s pension. Junior SIPPs benefit from 20% tax relief but cannot be accessed until the pension holder is 55⁶. It’s worth noting that Junior SIPPs are subject to certain limits and rules which can change over time. If you are planning on opening a Junior SIPP, talk to a qualified Independent Financial Adviser who can help you with the nuances of managing a Junior SIPP.

What about teaching your children to save for themselves?

As mentioned before, a savings account can encourage your children to deposit money regularly, however small the amount is. There are also other ways your child can learn good money habits:

Encourage them to earn their own money such as doing chores for extra pocket money or when they’re older, getting a part-time job.
Keep talking. Discussing money and the benefits of saving will help dispel any confusion your children may have around finances.
Use money saving apps. Money which will show them how to save and how money builds up.
Show them the basics of the stock market by teaching them the fundamentals of investing and keeping an eye on fluctuations of stocks and shares. Teach children how money can grow.
Lead by the power of example and practice what you preach.

Are you ready to help your children help themselves?

Talk to us.

Our qualified Independent Financial Advisers provide unbiased, professional advice around all forms of financial planning, including savings and investments.

Book an appointment with an Adviser now.