Remember that feeling of excitement mixed with a touch of panic when you first held your newborn? Along with the overwhelming love, there’s also the realization that you’re now responsible for this little human’s entire future. And let’s be honest, in today’s world, that future comes with a hefty price tag.
Let’s be honest, life is expensive. As the years roll on, it becomes more and more difficult to save money. Housing costs soar while the price of average wages struggle to keep up. Many people will now never get to experience home ownership. As costs increase everywhere, more and more people are living pay check to pay check. Struggling to save for their futures, locked into a life of renting and financial insecurity.
But this doesn’t have to be the case for your children. While you yourself may be struggling to balance current expenses. Even small, consistent steps can make a massive difference in your child’s future. An investment that could go unnoticed from your monthly finances. But it might just be the best investment you will ever make.
Setting aside this small portion of your monthly income will secure your child’s future. Helping them with big expenses like paying for their education, a deposit towards their first house or their future wedding. These are some of the biggest expenses the average person will ever see. So why not prepare for your child’s future and help them with the bill ahead of time?
- When to Start Saving?
- Child Savings Accounts
- What is the Best Way to Save for Children?
- Further Financial Planning
- Conclusion
When to Start Saving?
The earlier you start planning for your child’s future the better. Starting early can give you time for your child’s investments to compound over time. Allowing them to gain interest far beyond the amount of money you initially invested. Starting early can give your child a strong financial foundation to start their life from.
Allowing them to purchase their first home or investment property. Pay for their education while reducing the amount of debt they go into. Or even just giving them a rainy day fund for a bit of peace of mind in their lives.
Child Savings Accounts
Children can have savings accounts just like an adult. Plenty of banks and building societies offer savings accounts for children just the way they do for adults. These accounts can be opened by anyone over the age of 18 for anyone under the age of 16. These accounts can be funded with as little as £1.
As they get older, children are able to manage their own accounts. Allowing them independence and start to gain understanding of the value of money and saving it. These lessons can be invaluable as they get older. Teaching them to have a healthy relationship with money. A gift greater than the money in the account can offer them.
The parent or guardians name will remain on the account until the age of 18. At this point the childs account will be transferred to an adult account. With the funds being placed completely under their control. But what is the best way to generate their wealth at an early age?
What is the Best Way to Save for Children?
Fixed-term Savings Accounts
Fixed term savings accounts are also known under the name “bonds”. These accounts lock funds in for a predetermined period. Usually providing more competitive interest rates compared to similar savings accounts.
These rates are locked in for the specified term. These rates don’t fluctuate with the market. Meaning the rate will not decrease should there be a decrease in the Bank of England’s base rate. On the other hand, should the Bank of England increase their base rate. The interest rate of the bond will not increase with it. Meaning there is potential for it to become less competitive over time.
It is worth noting that these bonds are locked in for a fixed term. Meaning funds can not be withdrawn within this term. Should funds be removed a penalty will be triggered with the possibility to wipe out all interest gained to date.
Junior Cash ISA
A junior cash ISA is like a regular savings account. The difference being that any interest generated on the savings is completely tax-free.
This type of account allows parents to save up to £9,000 a year, tax-free. The account will forbid withdrawals until your child turns 18. Ensuring that their savings are safe until they reach adulthood.
The drawback of the cash ISA is that unless you are likely to benefit from the tax-free interest. Another savings plan could yield better results. Due to many other platforms providing a more competitive base interest rate.
Junior Stocks and Shares ISA
A junior stocks and stocks and shares ISA puts your child’s savings into investments. These investments can include funds, shares and bonds. Allowing you to invest in a variety of different industries. Depending on what platform you use, you may be able to choose what your child’s stocks and shares ISA invests into.
This can allow you to control risk exposure, invested industries and volatility. Giving you more control over your child’s investments. Any profits earned are also free from tax. Profits are often bigger than a traditional cash ISA. Monitoring your risk, and choosing low risk investments is extremely important for this type of portfolio. With a low risk investment portfolio, returns of over 10% are more than possible.
This additional return comes with an associated risk. Interest is not guaranteed and is subject to market fluctuations. These fluctuations could result in a loss of money from your child’s investments. Investing for the first 18 years of your child’s life provides adequate time for sensibly placed investments to grow in value. Assuming proper investing practice is followed, including the creation of a diverse portfolio.
Junior SIPP
It is never too early to start thinking about your child’s retirement. Many people work their entire lives to save for a reasonable pension. A Junior Self-Invested Personal Pension can give your child’s pension the boost it needs. Saving them a great deal of worry and stress later on in life.
A Junior SIPP allows investments to grow tax-free. Giving an incredible potential for long-term gains. Saving 20% on investment gains. SIPP’s offer a wide range of investment options, allowing for a diversified portfolio. Much like the Junior Stocks and Shares ISA.
Over the extended period of time it will take your child to reach retirement age, it will give your child’s SIPP plenty of time to compound. Hopefully reaching many times your original investment. Over time the portfolio will compound faster and faster, providing impressive returns in the long term.
These benefits do come at a cost however. All investments made into the Junior SIPP are locked until the child reaches the age of 55. This age will be further rising to 57 in 2028. Over this length of time, any investments can grow into a sizable retirement fund. Even with only a small initial investment. Making it a great way to watch out for your child’s future and secure them for retirement.
Further Financial Planning
Creating a will
Nobody likes to talk about death. But planning for it ahead of time can help take the stress off of loved ones. Creating a will can be crucial in making sure your wealth is distributed the way you want. As well as avoiding disputes within your family.
More importantly, if your child is under the age of 18. A will can allow you to name guardians for your children in the event of your death. Without a will, this is decided by the court who may not always make the best decision for your children.
Life Insurance
Life Insurance can protect your loved ones should you die. If there are other people depending on your income, your dependents may struggle in the event of your death. You can plan for this with life insurance. Life insurance will pay out a large sum of money should you die, with monthly installments.
How much is paid and to who depends on which plan you choose. You can tailor these plans to your lifestyle. Ensuring your income is covered for a certain amount of time, giving your loved ones time to adjust.
Conclusion
While there is no one right way to plan for your child’s future, there is definitely a wrong one. Inaction to plan for your child’s future could leave them financially unstable, with nothing to fall back on. Creating a savings account can help them transition into adult life or retirement seamlessly. Giving them enough breathing room to truly enjoy their adult life without the concerns over money.
While you may not be able to save thousands every month. A small sum could be life changing for your child. If you start early this sum can compound over many years, growing into considerable savings.
Ready to secure your child’s financial future? The first step is to start saving. What are you waiting for?
Effortless Investing 
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