Investing for Kids

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As your kids grow up, understanding how money works will benefit them for the rest of their lives. Teaching them early on about the basics of money, investing, saving, and spending will make them more likely to be financially confident and secure later in their lives. They don’t need to be experts on everything, but you can help them build a healthy foundation on which they can build their own knowledge and positive money habits.

But it’s not just about knowing what to do with money if you get it, it’s also helpful to have some experience with having it. That’s why saving and investing are two of the most important areas for kids to get to grips with as early as possible.

Saving is usually the best place to start. It’s easy for kids to grasp the importance of putting money away a little at a time so they can pay for something big in the future. It can even be fun setting saving goals and meeting them by earning pocket money and saving their allowance. This is also a great opportunity for kids to learn about money and build healthy habits.

As a parent, it’s good to start saving for your child as soon as possible. Even small amounts at time can build up to a substantial pot over the course of their childhood and teenage years. You can set up a savings account or cash ISA for your child and pay into that weekly, monthly, or whenever you can. However, while interest rates on children’s accounts can be better than those for adults, they’re still quite often not all that great. Factoring in inflation, which means your money is worth less over time because of rising prices, simply putting money away in a savings account might not be all that effective. This is why it’s also important to consider investing.

Investing isn’t always the easiest concept to get to grips with. The risk involved and multitude of options for investment can also seem daunting. However, investing is also your best bet for beating inflation and building up a considerable pot of money for your family. Investing for your child can provide a welcome financial boost when they need it, help them with the future costs of education, buying a home, getting married or even retiring, and reduce the amount of inheritance tax that might need to be paid in future.

Investing is also another opportunity for kids to learn about money and take some control over and responsibility for their financial futures. Saving and investing in conjunction is the best way to reach their big goals like buying a house. In general, investing apps and institutions require you to be at least 18 before opening an investment account, but there are a few different options that allow younger people to make some investing decisions. Setting up an investment account for your children can help because they can see the growth, and there’s less temptation to make impulse purchases. It can also be interesting and fun to put your children’s money in places they’ll be able to recognise such as buying shares in companies like Disney and Apple, or investing in funds that support causes they care about like climate change. However, you still have to be aware that there is a risk and investments can mean you lose money. This is also an important lesson for children as they can learn how to consider and manage risk.

The best place to start with investing for your children is usually a Stocks and Shares Junior ISA (JISA) like the one Bex offers. A JISA is a tax-efficient investment account for children under 18. Any parent or legal guardian can start a Junior ISA for their child, and anyone, such as family and friends, can add money to it. When the child turns 18 they will get access to the money in the account, this means it’s a great way to build up some funds for university, a deposit on a home, or whatever their next big step into adulthood is.

Each tax year (6 April to 5 April) there’s a limited amount of money you can put in a Junior ISA. This tax year the Junior ISA allowance is £9,000. There is also no capital gains tax to pay if the investment grows, and no UK income tax on any dividend or interest payments, which could save thousands of pounds in tax over the long term.

Your child may already have a Child Trust Fund if they were born in the UK between 1 September 2002 and 2 January 2011. The government paid between £250 and £1000 into these accounts which the child could access at the age of 18 to help them get a head start. If you’re not sure if your child has one or where to find it, you can use our Child Trust Fund Finder to locate it. You can also transfer their Child Trust Fund to a Junior ISA with Bex.

Another option is a Junior SIPP. This is a Self-Invested Personal Pension you can start on behalf of a child to help them invest for retirement. It’s for people happy to make their own investment decisions, and is not accessible until age 55 which is likely to rise by the time your child reaches retirement.

Parents or guardians can open a Junior SIPP for their child, if the child is a UK resident

It’s a way to create a valuable nest egg for a child’s future with no investment limits or access restrictions. It could give your child a substantial head start in saving for the future. A Junior SIPP is the same as a regular SIPP, the only difference is that a parent or legal guardian manages the account, and makes any investment decisions, until the child turns 18.

The money in a SIPP cannot be accessed until age 55 (rising to 57 in 2028 and likely to rise further). This means a Junior SIPP has decades to mature.

Invest up to £3,600 gross per child per tax year — the taxman automatically pays 20% tax relief (up to £720) so you can put in up to £2,880. Investments in a pension are free from UK income and capital gains taxes. Remember tax rules can change and benefits depend on personal circumstances. Gifts to a child’s pension are also often covered by one of the inheritance tax exemptions and so could fall outside your estate for inheritance tax purposes.

A Junior SIPP can be opened by completing a simple application form. If your child is over 16 they will need to sign the application, otherwise it will need to be signed by a parent or legal guardian. You must also complete a Legal Guardian form if they are under 18.

Gifting money to a child’s SIPP is a smart way to boost the financial prospects of a child in later life. With a Junior SIPP, you control where it’s invested and can choose from a wide range of funds to match your values and goals, as well as UK and overseas shares, investment trusts and more. You don’t need to be an expert stock picker to get started with investing. You can leave the day-to-day management of investments to an expert by choosing funds.

The important thing is making a start on saving and investing for the future. Accounts like the Junior Stocks and Shares ISA and the Junior SIPP offer the chance to get started writing away for building a secure financial future for your child. They are tax-efficient and because they are for investments they are much more likely to withstand the effect of inflation on the value of your savings over the long term. Time is what makes investing so powerful as a way of building wealth and time is exactly the asset that children have the most of. The sooner they start the better.