Like learning a foreign language or playing the violin, skills in finance are easier to understand the younger you start. We look at getting your children started in investing.
Collecting comes naturally to many children, and most understand the idea of saving as soon as they can count. Many are delighted when they can see savings mount up.
The concepts of earning interest, and investing can be a little harder to grasp. Still, many will understand the idea that there are more rewarding places to save than the traditional piggy bank.
It may be a few years before they’re ready to tackle asset allocation and derivatives. But by the time they reach secondary school it may be simple enough to start introducing the basic concepts, and start building a financial awareness that will last a lifetime.
Making saving interesting
The first step is probably to explain interest. The idea that they can get paid for saving is enough to persuade many children to start putting money aside.
Then there is the understanding that time really is money. More time invested means more time for money to grow – especially when compound interest is involved.
You could touch on the importance of not having all your eggs in one basket. But most children are risk averse and prefer the idea of making money grow without the fear of losing it. Most products aimed at children are therefore designed to be risk free.
Different types of investment
The theory is important, but it does not mean much until children see how to put it into practice.
The simplest step might be to open a Children’s Savings account. This can help demonstrate the power of regular saving. It also helps establish the idea that just because their money is not physically present, it is still theirs to call on if they want it to buy something special.
Of course, it is the magical way that the money grows with interest payments that makes Children’s Savings accounts so very exciting.
There are plenty to choose from, and some have some extras that appeal to children, such as regular newsletters to help maintain their interest. Some can be run over the internet, but you and your child might still prefer the special experience of stepping into a bank or building society and dealing with real money.
Saving in an account from a high street provider can be followed by a Junior ISA (or JISA).
The main advantage of ISAs – that they are tax efficient – might not seem very relevant to children, who only rarely have tax to pay. However, any money put in will retain its ISA protection after the child turns 18, when they can transfer it to an adult ISA. The child and others can contribute up to £4,260 each year – so it could be a very astute way of building up a sizable ISA pot to get their adult investing off to a good start.
JISAs can be either Cash or Stocks and Shares, however once you invest money into a JISA it is not accessible until the child turns 18.
Once your child becomes an investing enthusiast, the next step might be to explore the world of stock and shares with a model online portfolio that tracks stocks for fun – but that may be several years in the future.
If you would like more advice with getting started with investments, for yourself or for your offspring, you might want to talk to an expert help. At Continuum, we would be very happy to provide the help you and your young investors need.
The Financial Conduct Authority does not regulate deposit accounts.
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action.
The value of investments can fall as well as rise and you may get back less than you invested.
Tax rates applying for tax year 2018/2019.
Equity investments do not afford the same capital security as deposit accounts.