Children are our future
Children are our future, but in this SaidSo free guide, we want to look at their future and what can be achieved by parents and grandparents... and indeed anyone else who wants to contribute to their financial prospects.
From birth
Children are our future, but in this SaidSo free guide, we want to look at their future and what can be achieved by parents and grandparents... and indeed anyone else who wants to contribute to their financial prospects.
From birth, if not before the arrival, it is not uncommon for parents and grandparents to put money aside for the future of the new member of the family. There may be a range of high-reaching aspirations for a child’s future, especially if it’s a first child. Here lies an element of caution (sorry to pour cold water on the family’s delight at this stage) in that a first child may lead to other children, so don’t ever regret being over-generous to the first child, only to find that it becomes a stretch later on in being equitable to them all.
From birth, a child has all the standard tax allowances that an adult holds and this can be advantageous. Some allowances are limited, such as the normal ISA allowance which is limited from £20,000 to £9,000 (2024/2025) for a Junior ISA. These options are noted below and please remember that it might be a combination of plans that are used to achieve the planning needed for a child or young adult.
Starting early!
Saving can start at a very early age, possibly with a child’s savings account. In most cases, interest should not be subject to tax because this is likely to be covered either by the income tax personal allowance (£12,570 gross in the current tax year) or if there is other income, by the personal savings allowance (£1,000 gross pa for basic rate tax payers). Just to say that there are different tax rules if a child gets more than £100 in interest from money gifted by a parent, but the £100 limit doesn’t apply to money gifted by anyone else, e.g. grandparents, relatives or friends.
Savings accounts are usually a safe, low risk investment, so this might be a good place to store money or gifted cash in the short term, but because returns are so low, inflation might erode the real value.
So, what else can you consider?
Junior ISA (JISA)
ISAs are tax efficient savings, and this is just for Juniors! Up to £9,000 can be invested into a JISA for a child in a tax year. This might be a lot to some, and many plans allow you to start at far lower levels. There are two sorts – a cash JISA, where no tax is payable on any interest generated, or a stocks & shares JISA, where any capital growth and dividends received are free of tax.
So, which one? The type of JISA you choose will depend on the investment risk you (or the person who gives the money) are prepared to take. A stocks & shares JISA would usually involve investment risk, although would provide more opportunity for growth over time. It can be sensible to consider stocks & shares JISA arrangements, particularly when the child is very young, as the funds will be invested for a significant length of time.
One concern is that the money becomes the child’s at age 18, and they might spend it on something that may have not been on the original agenda. Some control may be needed at this point
Pension? Yes really!
The last thing on your mind might be saving for a child’s old age, but it can be done. Each child has their own tax allowances, even though they don’t work, and a parent or grandparent can save up to £3,600 gross in a tax year for a child. This means that you can pay up to £2,880 net and the government adds the rest.
Pensions usually need two things. One is time and the other is money, and a child has a lot of time to go before retirement, so even small contributions can make a real difference over the longer term.
One point to note is that under current rules, the child will need to be at least 57 before they can get their money, and you may not be around for them to thank.
Gift Allowances (grandparents, parents... and others)
It might be easy for some to get carried away with how much they gift away. We noted this at the start. Remember, an individual can give away £3,000 each year using their annual gift allowance and this will fall outside their estate for Inheritance Tax purposes from the date of the gift. If you didn’t use last year’s allowance, you can go back one tax year (£6,000 total).
Child Benefit
If not needed in the household budget, this can be saved to build capital for the future. Just an idea, and for many not feasible with stretched household budgets, but perhaps worth considering. There are currently (2024/2025) two rates of Child Benefit, as follows:
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Eldest or only child - £25.60 per week
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Additional children - £16.95 per child per week
Saving birthday money... and more!
We are advocates of educating children early on the value and benefits of using money well. Many schools now have good programmes within their curriculums to help understanding, although some help from the family will never go amiss.
However you save for a child or young adult’s future, aim to get them involved at an early age. This might be one of the biggest benefits that you can provide to them for their future.
University & other opportunities
You don’t need to search far in the media to know that university tuition fees, and all the associated costs of being a student, are not cheap. There are some eye watering figures as to the debts that can be accumulated at the start of a working life. If you are planning to help towards these costs, then start early. The more time you have to save, usually the bigger the pot.
Some people choose to go straight into the workplace, via an apprenticeship as an example. First incomes and company pensions can be daunting, but have a look at our next guide for more on this.