All parents want to help their children in every way possible. This includes assisting them financially where they are able to do so. Many parents, including new parents, are interested in making investments on behalf of their children to build a nest egg for their adulthood. Of course, everyone is in a different position financially, meaning there is no black and white answer as to the best way of making such investments. Below are some questions parents may have regarding investment for children.
Should you give your children a lump sum once they reach a certain age, such as 18?
With some investment plans children (or young adults by then) get control of the funds that have been saved for them once they turn a certain age, usually eighteen. Some parents may decide to give their son or daughter a lump sum of money at a particular age even where an investment plan isn’t involved. So is this a good idea? Parents may have certain concerns about doing this, after all, those in their late teens don’t always make the best decisions, especially where money is concerned. Despite what some might believe, though, most won’t spend thousands in the pub; they are much more likely to pay for driving lessons or a car. This is up to individual parents and some children are more sensible than others. Remember, though, that with some child investment plans you will not have a choice with young adults automatically gaining control once they turn eighteen. This means you need to think about these issues a lot earlier than this.
Would parents be better off paying for certain things for their children rather than just giving them the money?
This is something that will be preferable for many parents as they are in control and can make sure their hard earned cash is spent on something worthwhile. Some will prefer to pay for their children’s driving lessons, for example, rather than give them the equivalent money that they could spend on anything they like.
Should we pay regularly into an investment plan?
Is it better to pay regularly into a child savings plan or when you have the money available? This really depends on what you can afford. Where possible it can be beneficial to save on a monthly basis so the fund builds up over time. Not everyone is able to do this though, so for some parents putting in funds when they can is a better option. The more you can put in earlier the better, as it will leave more time for the value to grow in the form of interest.
Is the Junior ISA advantageous to us?
Again, this is dependent on a families individual circumstances. If you believe you may need the funds you are putting towards a junior ISA then it is not the right option for you as the money in locked-in and you will not be able to have access to it. If you can be confident this won’t be the case then it may well be the best option due to the tax advantages.
If we pay into a Junior ISA should we use the entire allowance at the beginning of the year?
The Junior ISA allowance is currently £3,600 a year, the equivalent to £300 a month. If you are able to then investing the whole £3,600 at the beginning of the year is financially beneficial rather than paying in some each month. This will mean gathering more interest throughout the year.
Is the Child Trust Fund still worth investing in?
The situation whereby those with a child trust fund account cannot transfer it into a junior ISA has been criticised as some providers are not offering as favourable interest rates for child trust funds. If you have set up a child trust fund for your child, though, it can still be worth investment. To judge its value you will have to compare it with other investment opportunities.
Andrew Marshall ©