Investing through the ages – children and teens


Many people are turning to investing rather than savings accounts.

When interest rates are low, as they are now, investing – buying into funds, or items such as commodities or shares – has the potential for much better returns than savings accounts which keep your money as cash.

At Continuum, as part of our series on investing through the ages, we look at how young people can become investors.

Why children and teens need investments

Time really is money. The sooner you start investing, the longer the investment has to grow, and thanks to the wonders of compound interest, the larger the eventual returns can be.

Starting investment early could mean building up a substantial sum ten or twenty years later when the time comes to buy a first home, or later in life for retirement.

Of course, most children do not have an income to invest, but they may have generous parents and grandparents to invest on their behalf. This can provide a sound financial foundation for life – and an answer to the perennial question of what to give for Christmas and birthdays.

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If saving no longer looks rewarding, investment may be the answer. To find out more with a free initial consultation, contact us now.

The simple way to invest for young people

You could simply invest on the stock market or other exchanges on behalf of a child, but you – or rather they – could lose out because of tax liabilities.

However, there are solutions providing tax-efficient investing for young people.

Keep the taxman away with a Junior ISA

An ISA – or JISA -. A Junior Stocks and Shares ISA – or JISA gives adults a simple and tax-efficient way to invest on behalf of a child

You can currently put up to £9,000 a year into a JISA, and as with any other ISAs, income and capital gains will not be taxed (as per tax year 2020/2021)

Only a child’s parent or legal guardian can open the JISA on their behalf, although anyone can then contribute. The child will take control of it when they turn 16,  but won’t be able to withdraw money until they turn 18 when it converts into an adult ISA.

Thanks to a rare loophole in the tax rules, between 16 and 18 young people have two ISA allowances, letting them put money into both a standard ISA and their JISA. This could mean being able to shelter up to £58,000 from tax (£9,000 for a Junior ISA and £20,000 for an adult cash ISA per child between the ages of 16 and 18).

Look at the long term with child’s pension

An 18-year-old might be tempted to misuse the money in their JISA. A pension avoids the problem, because it must remain invested until their retirement age.

A child’s pension may seem a strange idea, but like your own pension, it offers major tax advantages, and according to HMRC figures, around 60,000 under 18s have a pension plan. The power of compound interest and skilled investment could mean that in around 50 years’ time, they could have a comfortable retirement, whether or not they make pension contributions of their own.

You can open a pension for each of your children and can pay up to £2,880 a year which will be topped up to £3,600 by the government in tax relief (as per tax year 2020/2021).

Successful investment requires careful planning and must depend on your circumstances and your age – because as the years go by our priorities and financial goals change dramatically. We have prepared an infographic on the different ages of investment here and we will be looking at each stage in more detail in a series of articles.

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Getting your children’s finance off to a good start can be easier if your plans for them fit in with those you have made for yourself. To discuss family financial planning, call us now.

What should you do?

You can set up a JISA or a child’s pension, or both. But you need professional help. There are many providers who can offer suitable schemes and getting the best value needs expert knowledge.

At Continuum, we can help you find the best ways to arrange the JISA or child’s pension to get your younger generation off to a better start with their investments.

The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to suitable Investments products or 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.

The Financial Conduct Authority does not regulate taxation advice

Equity investments do not afford the same capital security as deposit accounts.

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