We all want our children to do well in life – to succeed and be happy. And because money is such an important part of life, it’s important they learn what it’s for, where it comes from and to have a healthy respect for it. Studies have shown that children who understand money and learn to save at an early age are much more likely to successfully manage their finances as adults. This week, we explore the different savings products available for children, with a step-by-step guide.
“My philosophy is I’m raising future adults, not children.”’
Usher
1. Piggy banks
Most children have a piggy bank to save their pennies. Young children enjoy the ‘clink’ as the coins drop into the money box and counting the money over and over again, long before they understand what it’s worth. This is a really easy way for them to learn more about the look and feel of money. As they get older you can show them the value of their savings by looking at what that money can actually be used for and perhaps having a coin purse. Children are great at spending parents’ money but can be surprisingly frugal when spending their own.
2. Children’s savings accounts
If you are thinking about saving for your children and want to keep your money in cash so it’s easily accessible, consider children’s savings accounts. There are some poor interest rates on the high street so our recommendation is to compare different accounts thoroughly – look for any ‘catches’. You will probably find some banks attempt to lure children into opening accounts by offering freebies or toys, but these accounts may not offer a good interest rate. What’s often most important is the ease of use and convenience because children’s accounts often have to be managed in-branch rather than online, so you’ll want to pick a bank that’s close to you.
3. Online – Children’s savings apps
Thinking about older children, did you know there’s a variety of apps out there to help your children save and spend wisely? Our top favourite is goHenry, which is targeted at teenage children and can help you as a parent to easily transfer money into their account then keep an eye on what they’re spending. Accessible from a smartphone or tablet, the account can be topped up with pocket money every week, and each time your child spends, you receive a text alert on your phone. The app also allows your child to set goals and targets, such as saving for a friend’s birthday.
4. Junior ISAs and Child Trust Funds
If you are saving more for your children over the long-term and want to invest to get returns greater than the bank, you could consider investing through a Junior ISA until they are 18. Junior ISAs, just like the normal adult ISAs are protected from tax, so income and investment gains are tax-free. And when they get to 18, the Junior ISA just matures into a normal ISA.
During this tax year, they can save up to £4,128. There are two types of Junior ISA – a Cash ISA and a Stocks & Shares ISA, so consider what’s best for your situation. Obviously, a Junior Stocks & Shares ISA will perform depending on the stocks or shares you’ve invested in.
If your child was born between 1 September 2002 and 2 January 2011, a Child Trust Fund would have been opened automatically by the government. However, since 2015, you can convert these now ‘defunct’ trusts into Junior ISAs. You can read more about Child Trust Funds in our previous blog on Children’s Savings.
5. Money management and motivation
Get your child involved from the very start. Older children can learn about interest rates or investment returns themselves so they begin to understand how the financial world works.
For older children who have perhaps left school or university and are starting to go out to work, why not agree to top up their savings by way of an incentive? For example, if your child agrees to pay £20 into their ISA each month, you can either match this by an additional £20 or a greater amount. This savings ‘agreement’ between you could extend well into their twenties, to start good habits and to build up a pot to draw from for big spends like new cars without having to turn to borrowing on credit cards or taking out a loan. Those savings can also be put towards house deposits or big travelling trips in the future.
Bear in mind, if you are adding to your child’s savings and this amounts to more than £100 of interest per year, savings will be taxed at your tax rate (this is a measure put in place to prevent parents earning ‘extra income’). If you are concerned about this, please speak to one of our financial planners for advice.
6. Saving for a property – Help to Buy ISA
The Help to Buy ISA can provide a useful means to secure your child’s home. The government will top up savings by 25% to help towards a mortgage deposit – e.g. for every £200 your child saves, the government will pay out £50, up until the maximum savings amount of £12,000. This scheme will continue until 30 November 2019 (bonuses must be claimed by 1 December 2030). The Help to Buy ISA must be opened in your child’s name, they must be over 16 years of age and they must be a first-time buyer. The amount you will save each year is generally less than a standard ISA, but obviously the 25% bonus makes up for lower interest rates. Speak to one of our financial planners for more information on the Help to Buy ISA.
To conclude, helping your child to save and learn the true value of money is a vital lesson for successful financial planning in the future.
For more tips on helping your child to save, please see our previous blog, Children’s Savings: Investing for their future.
If you’re looking at savings and investments for your children, please get in touch and speak to one of our financial planners. We would be happy to discuss all of the options available to you.
