Saving and investing for your children’s future

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We all know that bringing up kids isn’t cheap and the financial support doesn’t stop when they leave school; in fact, this is when the ’big ticket’ expenses kick in; their first car, university fees, post graduate education, marriage and getting on the housing ladder.

Did you know that in 2019 the bank of Mum and Dad was the 11th largest mortgage lender in the UK? With youngsters battling to get on the housing ladder, parents in the UK gave or lent their children a whopping £6.3 billion to help them with their first home purchase.

With the Office of National Statistics now showing that the average house is now priced at 8 times the average salary, a home purchase for many young adults will feel like a ‘pipe dream’ unless parents can give them a helping hand!

Saving for your kid’s future is like saving for retirement, the earlier you start the better!

Do you remember our parents' advice about pension schemes? Join one as soon as you start work, you won’t regret it. The same advice applies to kids, start saving as soon as they are born!

For retirement most of us save into a pension scheme and for our children’s future there’s the option of a Junior ISA (JISA). A JISA is like a pension scheme in that there’s no tax paid on any investment growth or interest earnings. It’s a tax-free nest egg.

You can take out a JISA for each child under the age of 18 years and now pay in up to £9,000 a year (up from last year's £4,368). You must be a parent or legal guardian to open a JISA, but once it’s set-up anyone can pay into it. So, Nan and Grandad can start gifting money to the grandkids and help give them a good start to their adult lives.

And if by Christmas you don’t think you’ll reach the annual limit for that tax year (the tax year runs from 6th April to 5th April), why not ask other family members to contribute instead of adding to the ever growing pile of Christmas presents? They will probably welcome the suggestion; it’s easier than thinking about what to buy and they’ll feel great that they are contributing to their favourite niece’s or nephew’s future!

You control and manage the JISA until the kids reach age 16 at which point it’s over to them! But don’t worry about them squandering at this stage. They won’t be able to start drawing out money until they’re 18.

When you open a JISA, you’ll need to decide how you want the money to be invested.

There’s a cash option which generates interest earnings, or you can choose to invest the money for potentially better returns. You can also have a mixture of both; just bear in mind that when you invest, capital is at risk and the value of investments can go down as well as up.

If you’re already saving into a Child Trust Fund (you can’t open up a new one anymore) you can still open up a JISA but you’ll need to close the Child Trust Fund and transfer it into the JISA. Your provider will sort this out for you. Just do a comparison of both products first to decide which one is best for you.

Whichever option you choose, there should be less pressure on the bank of mum and dad in the future! Your kids will have their own pot of money to help them into adulthood.

Important: This content is for guidance and educational purposes only and is generic in nature. Salary Finance Limited (trading as Neyber) does not offer regulated financial advice. Please seek independent financial advice.