Mum of two Emma Mitra tells us about how she invests the kids’ cash.
By Emma Mitra
My two-year-old has more money than me. It’s mainly thanks to generous grandparents who love any excuse to spoil her and her sister.
My husband and I, while not as flush with cash as our baby-boomer parents, are still mildly terrified that things like buying a home will be unobtainable for our children, so we put a bit away every month for them too.
Our family is not unique. Whether it’s gifts for birthdays and Christmas or regular payments to build a pot of savings for the future, parents, grandparents, aunties and uncles are boosting bank accounts belonging to the children of the family.
But, how can we make the most of this generosity and try to make our kids’ cash work as hard as possible?
Putting the money in a Junior ISA (or JISA) is one way to get that money growing. Under 18s are entitled to £4,368 of tax-free savings each year, after all, and a JISA is a tax-efficient savings account just for children, which can’t be touched until the child turns 18.
There are lots of JISAs on the market, so what factors should you look at when you’re choosing one?
What to think about when you’re opening a Junior ISA
Like normal ISAs, there are two types of JISAs: a Junior Cash ISA, which offers a variable rate of interest, and a Junior Stocks and Shares ISA, where the potential growth is based on the performance of whatever stocks and shares your money is invested in.
A Cash ISA is generally considered a safer option since your money is guaranteed to grow as long as the interest rate is above 0%. A Stocks and Shares ISA, meanwhile, has the potential to provide a greater return, but can also fall in value.
But remember that the value of your investments can fall as well as rise and you could get back less than you invested.
Wealthify Junior ISA
Help to kick-start their future
Capital at risk
Level of risk
If you decide on a Junior Stocks and Shares ISA, as we did, you need to think about how risky you want to get with the investments. Most providers will give you the option to have their fund managers do the actual investing on your behalf – you just need to decide on the level of risk you want to take.
One of the reasons we chose the Wealthify Junior ISA was because we liked that the risk options were easy to understand: you can choose an investment style that is Cautious, Tentative, Confident, Ambitious or Adventurous, and are given a succinct explanation on what each choice entails.
If what your kids’ money is invested in is as important to you as how it performs, then look for a provider that gives you the option to invest in ethical funds. Wealthify defaults to an Ethical Investment plan, so you can be sure you’re investing in organisations committed to positive social and environmental change. Which, let’s face it, isn’t a bad thing to do for our children’s futures either.
The long haul
With any JISA, you’re in it for the foreseeable: the money can’t be withdrawn until your child turns 18 (apart from a few circumstances which you can read about on the government’s website).
You can, of course, transfer an existing JISA to a new provider if you find a better deal, or want to switch from a Cash ISA to a Stocks and Shares ISA (or vice versa). But if you’re after a more flexible approach to saving your kid’s money, a JISA may not be for you.
It’s worth bearing in mind that once you’ve set up a JISA, it can’t be accessed by anyone until the child turns 18. That’s right – parents can’t access it either. So be prepared to relinquish control over what your future grown-up children will spend their cash on.
For us, a JISA brought lots of positives: we liked that our daughters have bank accounts in their names, the tax-man can’t get at it and the grandparents can pay in knowing that it’s going towards the kids’ future (and can’t be dipped into by well-meaning parents scrabbling together to pay for a loft extension).
But we’re also aware that we may not raise 18-year-olds who want to spend their money on something sensible. We made the decision that the JISAs will be funded by financial gifts and our children are free to spend the money how they like. We’ll save money separately, in our names, for things like paying for university, or a deposit for a house.
Everyone’s different, of course – it could be worth speaking with an independent financial adviser about the best way for you to save for your children’s futures.
Teaching your child about money
A JISA is a fantastic opportunity to teach your children about saving and investing. Technology is making it easier than ever before – look for a provider that has an app to show your kids their savings in real-time and get them engaged with their money.
My gadget-loving husband is already slightly addicted to looking at the Wealthify app to see how our daughters’ JISAs are performing – you can see how much money they’ve made or lost each day. It’s a ritual that I’m sure our daughters will enjoy doing with him as they get older (let’s be honest: they’re not going to have much choice).