How Should I Save For My Children?

Parenting / 25 June, 2018 / Ellie Thompson

How Should I Save For My Children? The Junior ISA Explained

If you invested £340 per month (the Junior ISA allowance divided by 12) for your child from birth to 18 and it grew at 5% after charges, you would have a pot of £118,728.69.

I always say that you should ensure that your financial situation is on track before you start squirrelling money away in your children’s names. Here are the types of things that I would like a client to be doing before they start to save for their kids:

  • Have a repayment mortgage over an interest only one.
  • Have your emergency cash buffer sorted (ideally 6 months worth of fixed outgoings kept in cash)
  • Make sure your retirement planning is on track

Once you have ticked these boxes, the next thing you need to work out is if you plan to save (in cash) or invest. In a nutshell, if your child is going to need to spend the money in the next 5 years, your only option is to save in cash. If you are happy to put the money away for the medium term and you are prepared to take some risk, then perhaps investing is the right thing to do. Make sure that you get professional advice if investing to make sure that you are doing the right thing for the right reasons.

The next thing to consider is then “how much?” The answer is whatever you feel you can afford. Most products will allow you to vary the amount you save (up or down) and also stop paying in entirely so just check the terms and conditions before you commit.

Is a Junior Isa the right place to save?

Here are some facts you need to know:

  • In this tax year you can save £4,080 per child
  • Your child must be under 18 and living in the UK
  • You can’t have a Junior ISA and a Child Trust fund
  • There are two types. Firstly a cash Junior ISA and the second is a stocks and shares Junior ISA
  • You can have one or both types of Junior ISA. But don’t pay in more than the annual amount each year across both of them
  • The child can take control of the account at 16 but can’t withdraw until 18
  • In both options, the money is ultimately the child’s and the parent is just taking responsibility

Now there is a glitch in the system if you really want to save a lot. A child of 16 and 17 can have both a Junior ISA and an adult cash ISA at the same time.

The most important thing for me is that the child will have access to the savings at 18. Now most children will (hopefully) be responsible and spend their money wisely and in accordance with their parent’s wishes. However, as I have seen many times, this is not always the case! Saving all your life for your child to have a great party at 18 might not be what you had in mind!! Therefore if a client is not maxing out their personal ISA allowance (and potentially CGT allowance) each year, I usually recommend that they keep the money in their name. If they are investing then I usually create subaccounts to separate the money allocated for the kids from that of the parent.

Lots to think about!!

Miss Lolly xx
Smart Financial Advice for Women

Whether you need help with mortgages, investing, saving for a rainy day, or just tackling your financial fears, Miss Lolly will give you unbiased advice based on the very latest financial wisdom. No jargon, no lectures – just the vital stuff you need to know, in user-friendly language. Get in touch via her website.

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