Tips for saving for your child or grandchild’s future

Keen to give the next generation a boost in adult life, parents are putting money away for their children’s future. And it’s likely that many grandparents and other loved ones are playing a role too. We take a look at the steps you can take to maximise the cash you put away with young family members in mind.

Parents are expecting to save an average of £7,000 by the time their child turns 18, according to a poll from Nationwide Building Society. The research found:

  • Eight in 10 parents put money into their children’s saving accounts, piggy banks or pockets each month
  • The average monthly amount put away is £33.72
  • 5% are hoping to save more than £10,000 before their child reaches adulthood

With the younger generation often facing pressure on their finances, many parents are saving with a defined purpose in mind.

  • 50% are creating a nest egg for their child’s future
  • 45% hope the money will provide support while achieving a university education
  • 35% want the money to be used as a deposit on a first home
  • 30% are saving to help their child purchase their first car

Benefitting from a lump sum once they turn 18 can give youngsters a much-needed hand as they enter adulthood. But it means that some financial know-how is needed to make the most of it too. Buying a home is unlikely to be on the radar of most teenagers, even if the money’s been stowed away with this in mind. As a result, there’s a chance they’ll fritter it away. It’s a concern for 38% of parents but a quarter have never discussed money or saving with their children.

Equally, parents are worried about their ability to handle the savings. Almost a third (32%) have confessed to dipping into their children’s savings. While 41% admit they’re put off saving for their children as they worry a financial emergency may occur in the future.

With this in mind, good saving habits and the right product can help.

10 tips when saving for a child’s future

1. Make regular deposits

The Nationwide survey suggests this is a step many parents are already taking. Making regular deposits into a child’s savings account can help to form a positive habit. Setting up a direct debit to go out of your account with other essentials can decrease the chance of you forgetting or dipping into the cash.

2. Keep savings separate from pocket money

As children get older, it’s likely that they’ll receive pocket money too. Where possible keep this separate from the money you’re saving. It’s a step that can help them understand the difference between short and long-term spending habits and you may be able to encourage them to put pocket money towards savings too.

3. Easy access accounts allow for withdrawals

Four in 10 parents worry that they’ll need the money they’ve saved. If this is the case, an easy access account could be the best option for you. While interest rates tend to be lower, you will be able to withdraw money as and when it’s needed. Before signing up though, read through the terms, you may find there are penalties for withdrawals or restrictions on how much can be deposited.

4. Consider using an Individual Savings Account (ISA)

For long-term savings, ISAs are often an attractive option. You can deposit £4,260 into a Junior ISA each year. You can choose from a Cash Junior ISA, where the deposits will benefit from interest, or a Stocks & Shares ISA, where the money will be invested. Whichever option you choose, the account is tax-free. Once the child turns 18, it will become a standard ISA.

5. Explore investing

When saving for a child, parents and loved ones often don’t want to take risks. However, it could be a costly decision. Interest rates are lower than inflation, effectively meaning the value of cash savings is eroded in real terms over time. Investing can provide an alternative. One important thing to note here is providers offer multiple risk profiles, so you can invest while still being relatively cautious, depending on your preference

6. Check for a Child Trust Fund account

If your child was born between 1 September 2002 and 2 January 2011, this should be a step you take. All children born during this time will have a Child Trust Fund, if you didn’t open one the government will have done so on their behalf. It will have been benefitted from an initial amount of at least £50. Since then, it may have benefitted from further deposits, interest or returns. Money in a Child Trust Find can be transferred to a Junior ISA.

7. Regularly review savings and products

A saving product that’s perfect now may not be suitable a few years down the line. Once you’re saving, make a commitment to regularly review it. It may be that better interest rates have become available on the market, your investment risk tolerance has decreased or you’re paying too much in fees.

8. Get your child involved

Speaking with your child about the savings can help set the foundation for good money habits in the future. It gives you the perfect opportunity to explain what you’d like it to be used for and why. They may even decide to add to it themselves, using spending money or gifts to top it up. Using bank cards like Go Henry can help children feel responsible and aware of their money, while you can still keep an eye on what they’re doing.

9. Mention savings to family and friends

Children often have more toys than they need, adding to a savings account can provide an excellent alternative. Letting family and friends know they can add cash to savings to mark birthdays, Christmas or other celebrations can give accounts a boost. Some may also want to contribute on a regular basis to support long-term goals.

10. Save in your own name

With so many parents worrying about how their child will spend the money, this can be an attractive option. It gives you more control over how the money is used. For example, you could transfer the cash to purchase a car once they pass their driving test or set up regular payments to see your child through university. When saving in your own name, it’s a good idea to keep it separate from your other accounts.

If you’re taking steps to create a nest egg for your child’s future, we can help. We can identify the best way to grow the money you save in the context of your goals and wider financial situation. Please contact us to start building up a savings account for your child or grandchild.