This guest post from family finance expert and MoneyPlus blogger Julie Hutchison looks at where you might wish to invest for your children’s future…and why their age should be taken into consideration.
John has written before on his blog about how his oldest child qualifies for a Child Trust Fund, whereas his youngest has a Junior ISA.
This mixed picture for children’s savings can now be simplified, thanks to rules which came in on 6 April. It’s now possible to transfer an old Child Trust Fund to a Junior ISA, which should open up more choice if you’re a parent dealing with one of the six million Child Trust Funds which exist.
But you might still be left wondering – which type of Junior ISA suits best? Is it cash or stocks and shares? And how much could be useful to set aside each month? The annual savings limit for each Junior ISA is £4,080, which breaks down to £340 a month, although that’s a limit not many of us will go near!
The answers to those questions will be personal to each family, but there is a ‘rule of thumb’ which could give you some guidance.
The key decision is whether to save in cash or invest in stocks and shares.
A key driver here is the age of the child when you first start to save.
If you have a baby or toddler, you have over a decade before their 18th birthday. That means you have longer to cope with the ups and downs of the stock market, and investing generally gives better potential for growth over that longer time frame.
If you have a teenager and are just starting to set aside savings now, cash might suit if you know the plan is to spend those savings to support college or university costs from age 18. In this scenario, you don’t have the same timeframe to benefit from the potential for higher growth with investments.
But if the idea of ‘too much too soon’ is a worry for you, with money being blown at age 18 in a way you can’t control, there are other options I’ve covered on my blog.
If you’ve any questions about children’s savings, do post below.
Law and tax rules can change. A Junior ISA or Child Trust Fund holding stocks and shares is an investment. Its value can go up and down and it may be worth less than you paid in. This blog reflects our understanding of the rules in June 2015 and isn’t financial advice.
Disclosure; This post was written in coolaboration with Standard Life and I have been compensated for hosting it. To see my disclosure policy please follow this link.