Happy National Family Week everyone! I hadn’t heard of this week before, but it’s a good opportunity to put together some tips on how you can provide future generations with a nest egg and the financial nous not to fritter it away on the latest Tik Tok meme stock.
All right, full disclosure, I don’t have any kids, but I am of the age where many of my friends do. So, here’s what I chat to them about.
Build a nest egg
To build a little pot of money for your sprogs, as well as bog standard savings accounts, you can choose a Junior ISA (JISA) and a Junior Sipp.
Junior ISAs are a great way to save for your kids as they grow up. You can invest up to £9,000 a year and if you start right away the compound growth each year can result in a hefty pot — even with most amounts — and could help with university fees, a first car or even be put towards a house deposit.
JISAs come in Cash and Stocks and Shares flavours. If you’re comfortable with investing in stocks and shares, you’ll get better returns than leaving the money in cash. With interest rates historically low, it will be difficult to find a rate that is better than those offered by savings accounts.
Be warned — once your child turns 18, the JISA is theirs to save (or spend) as they wish. The other thing to consider is that money can’t be withdrawn until they reach 18 — if you think you or they might need the money before, a junior ISA might not be right choice. However, money can be withdrawn from a savings account at any time.
If your child was born between 2002 and 2011, they may have a Child Trust Fund. These have actually closed now, but existing accounts can be transferred to JISAs. CTF providers are guilty of offering very mediocre rates, so you can probably secure a better rate by scoping out the market.
Another thing to consider is a Junior Sipp. A Sipp is a self-invested personal pension, so if you open one now it will give them a huge head start on their retirement savings. I know it’s hard to imagine your child retiring, but starting early will give them a huge leg up, even if you only make small contributions. That’s because of two things — time in market and compound interest —the interest will be earning interest (find out more about this in our start right now video).
Don’t blow it
I’ll be honest, I wasn’t particularly financially savvy when I turned 18, which caused some pretty big problems for me for a few years. You can avoid this by teaching your children how money works from a young age, so they have the right skills and knowledge to understand financial products and be sensible around credit cards and loans.
Nowadays, parents often indulge their kids and buy them what they want when they want, but that’s part of the problem — giving regular pocket money teaches kids valuable life skills. Your children will learn to make a finite amount of money last and prioritise their spending (the sweets or magazine dilemma…). It’s also a good time to introduce the concept of deferred gratification and saving for something they really want — a game, a camera, a trip to a theme park.
There are some really good pocket money apps that come with debit cards that help form good financial habits. For example, children can set and track their savings goals, have spend and save buckets, and be rewarded for completing chores or doing well at school. Grandparents and other family members can also transfer money to their accounts. There are strong parental controls too so parents can stop spending, freeze cards or prevent children from spending in certain shops or fast food venues (no sneaky McDonalds for example). Go Henry and Rooster are good examples of this type of account.
These apps come with a running charge of course, so another option is a bank account with a debit card. This is likely to be cheaper, but parents won’t have any control. Regardless of which option you choose, it’s better than handing a crisp tenner over. Younger children, in particular, are confused about cash as they rarely see adults use it. It’s best to teach them that money is digital from a young age — at the very least they’ll get used to seeing balances, money in and money out and be savvier when they’re older.
Of course, the earlier you start with all this the more you’re likely to get out of it. But even if you’re much later in life, perhaps you’ve suddenly become a grandparent, there are plenty of other ways you could help your family’s future generations.
You could look to boost a JISA or Junior Sipp through gifting some money, or you could set up a trust that can also help reduce the value of your estate for tax purposes. Holly Thomas’s blog on intergenerational wealth is a great resource, and is full of financial tips for those who are older and looking to hand money down, while not handing over more to the taxman than you need to.