Many children get inundated with gifts at Christmas, often based on the latest fad or craze. However, parents, grandparents and relatives wanting to give a Christmas gift that lasts a bit longer might like to consider investing for their child or grandchild instead - for example through an investment children’s savings scheme or a Junior ISA.
Most parents, grandparent and guardians want to provide the best possible future for their children or grandchildren. By starting an investment plan for them, you can help build a tidy nest egg that can make a big difference help when they grow up and maybe look to go to university or get on the property ladder.
Some opt to help their kids by opening cash savings accounts and these have their place. Others save into Junior Cash Isas. However, given the timeframe available before your children can access their monies, being more adventurous with your investments probably makes sense. Figures produced by Money Mail show that if you had saved into a Junior Cash Isa over the past 13 years rather than in a Junior Stocks & Shares Isa, you could have missed out to the tune of £21,000.
The Association of Investment Companies (AIC) claims that an investment in the ‘average investment company’ 18 years ago would have more than quadrupled, producing a return of 311%. For investors who opted to invest £100 per annum over the last 18 years instead (£1,800 in total) would have seen their investment grow to an impressive £5,838. For those who wanted to be particularly generous and make a £50 monthly contribution (£10,800 in total), their investment would now be worth a staggering £31,933.
The AIC also points out that over the past 18 years the top-performing sectors are Asia Pacific – Excluding Japan – up 561%, Global Emerging Markets – 461%, UK Smaller Companies – 420%, Global – 419% and Europe – 386%.
This is why many parents look to Stocks and Shares Junior Isas (Jisas). This tax-efficient children’s savings account allows you to make contributions on the child’s behalf, subject to an annual limit, currently £4,260 for the tax year 2018/19. Any gains do not incur Capital Gains Tax and they will not be considered part of the parents’ or grandparents’ estate for Inheritance Tax purposes. Nevertheless, the child will automatically get access to the money when they turn 18 and can then choose what to do with it.
There are other options too, such as investment trust savings schemes, premium bonds, direct shareholdings and pensions. There is a useful introductory video guide entitled ‘Saving for your children’s future?’, on the AIC website.
Putting money into a pension for a child is the ultimate long-lasting legacy. You get tax relief on the contributions and as the child won’t be able to access the funds until they reach the age of 55 (based on current legislation) there is plenty of time for the money to grow. So pensions are another attractive option.
So if you are struggling to think what extra to buy for your child or grandchild this Christmas, spare a thought for Jisas! Whilst it won’t have the immediate impact of the latest toy or electronic game, they may learn to appreciate it in the long run.
For more information or financial advice on investing for children, contact Kellands Hale.