Is it ever too early to save for your child’s future?
Eleanor Lowe, a part-time PHD student, is pregnant with her first child and has already started saving for future university costs. She is not alone. Growing numbers of parents, and soon-to-be parents, say they want to save and invest for their child’s adulthood — with university costs and eventual retirement ranking as the top priorities.
Ms Lowe, 26, and her husband, Richard Speight, 31, who works in communications for the Royal Opera House, began putting £150 a month into a “baby fund” as soon as they found out about the pregnancy.
“We want to use the money to help support our child in university or any further education it will need. I dread to think how much university fees will be in 18 years’ time and being able to help with the cost for this is a definite goal for us,” says Ms Lowe.
“I was incredibly lucky when I was a child that I had music lessons for two instruments, tennis lessons and lots of other educational activities and trips. It’s only now that you start adding up the cost of these things and realise that, for multiple children, that can come to hundreds of pounds a month. We want to ensure that we have money to give our children these opportunities.”
Research by Barclays bank found that more than half of those surveyed believe it is best to start saving for children when they are less than 12 months old. However, most respondents find themselves waylaid by other costs and fail to do so.
There are two main things parents can do to give their children financial security in their adult lives.
Invest for them
Many parents are saving cash in Junior Isas, an account that cannot be accessed until a child turns 18. However, cash is often not the best place for long-term savings. Putting savings for younger children into a stocks and shares Junior Isa, where it can be invested and grow, would be a better choice for many.
“Why anyone would want to open a cash Junior Isa for their child is a bit of a mystery. Children, like adults, enjoy tax allowances and need not pay tax on savings interest,” says Jason Hollands, the managing director of Tilney Group, an adviser.
In this tax year you can put £4,128 into a Junior Isa. Since 2016 individuals have had a personal savings allowance, which allows you £1,000 interest from your savings tax-free.
A child would have £567,258 in their pension pot if £300 a month was invested from birth to age 18
“Cash is not a suitable place to park assets for the long-term because the real value will be steadily eroded by the acid of inflation. This is especially the case in the current environment of record-low interest rates and inflation of above 2 per cent,” Mr Hollands says.
When it comes to stocks and shares Junior Isas, he recommends selecting a global fund rather than focusing on the UK, as many investors tend to do. He highlights the Scottish Mortgage investment trust or the Lindsell Train Global Equity fund for those wanting an actively managed approach. A cheaper option would be the Fidelity Index World passive fund.
Start a child’s pension
Most people do not realise that children can have their own pension from birth. A maximum of £3,600 a year can be saved into a junior self-invested personal pension (Sipp) and savings will receive a 20 per cent top-up from the government, as with adult pensions.
Maike Currie, the investment director at Fidelity International, an investment company, says that if you invested £300 a month into a Sipp for the first 18 years of your child’s life, and they added nothing more during their adult life, they would still end up with a £567,258 pension pot at 65. This assumes the money grows at 5 per cent annually with investment charges of 0.75 per cent. “A financially secure retirement is arguably the ultimate saving legacy you can give your child,” Ms Currie says. For our best buy tables, head to tinyurl.com/y7klubxm