With children going back to school it’s easy to look at the short-term costs like uniforms and forget the bigger picture. They have all just gone up a year, and the worlds of university and work are a year closer. It’s time to start thinking about giving your children a sound financial footing.
At Continuum, we have ways to help you do just that.
Why start thinking about money while they are still kids?
It’s easy to think that your children can plan their own future once they start earning, and that you need to look at your own financial needs. However, the costs of further education and of getting on the housing ladder have probably changed out of all recognition since you tackled them.
If you don’t give your offspring a financial foundation now, the chances are you will need to later on. The bank of Mum and Dad has become one of the major players in the mortgage market.
But there’s another reason to start saving for your offspring while they are still children. Time really is money. The more time money has to potentially grow, this may mean less needs to be saved to build up a larger lump sum.
So, if you can spare a little to give your children a financial foundation, what is the best way to do it?
Savings and Junior ISAs
A savings plan is a flexible way to put away money, and many parents and grandparents open savings accounts in children’s names at birth. Over the next 18 years or so the small gifts put in at Birthdays and Christmas can add up to a worthwhile sum.
Unfortunately, current low interest rates mean that the money will not grow much by itself – and in fact, it might have trouble keeping up with inflation over the years. The taxman might also take a share if interest starts to mount above £1000 per year.
But there is a way to make savings for children tax efficient. AJunior ISA – or JISA – gives adults a tax-efficient way to save money on behalf of a child.
You can currently put up to £4,368 a year into a JISA, and as with any other ISAs, the income and capital gains earned will not be taxed.
But the advantages don’t stop there. Rather than savings, which still mean sadly small returns even in an ISA, your child can have investments, which can have the potential for substantially higher growth and returns.
Only a child’s parent or legal guardian can open the JISA on their behalf. When the child turns 16, they will be able to take control of it – and even put in money up to the level of a standard ISA allowance as well as the JISA allowance – but won’t be able to withdraw money until they turn 18. They then get full control of the account, which becomes an adult ISA.
Consider a child’s pension
A JISA can be an effective way to build up the kind of lump sum a child will need when they reach adulthood, and start thinking about further education, buying a first home or perhaps starting a business. The tax advantages can make it a shrewd way to save.
But there could be another way to get your children off to a good financial start, although the potential rewards will be enjoyed in the long term, rather than in a few years time.
A child’s pension may seem a strange idea, but like your own pension, it means some major tax advantages – and like the JISA, its real strength comes from starting early, and giving contributions longer to grow.
Imagine having an extra 18 years growth in your own pension. That could be the benefit to your children if you start a pension fund for them.
You can open a pension for each of your children, by paying a net amount of £2,880 per year and the Government will currently add 20% tax relief grossing the amount up to £3600 per year, per child.
When your child turns 18 they become the owner of the pension. They can’t access it in until they are 55 under current legislation, but they can continue to contribute or leave the savings invested.
What should you do?
If you have enough spare cash, 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 but getting the best value for your money needs expert knowledge of the market.
At Continuum, we can help you find the best ways to arrange a JISA or a child’s pension – and help negotiate the taxation minefield to ensure that your generosity does not come back to bite you.
To find out more about the best ways to give your children a better financial start, without putting your own future at risk, simply call us now.
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.