How can I invest for my family’s future?

At a glance

  • Saving a nest egg can give your children a great start in life – and it can help the financial wellbeing of your whole family.
  • The longer the investment has to mature, the greater the potential benefit for your children will be.
  • A financial adviser can help you choose the smartest ways to save for your children or grandchildren.

They say you can’t put a price on family, but just how much does it cost to raise a child? Raising a child from birth to 18 in 2022, including household and childcare costs, stood at £157,562 for a couple and £208,735 for a lone parent1. Children are expensive, but seeing them grow and achieve their ambitions is often our greatest pleasure.

With the general costs a child brings, as well as the increased cost of living, many parents feel squeezed to make ends meet, let alone think about funding future costs like a car, university, or a deposit for a house. But building a nest egg for your kids doesn’t need to break the bank and could make a huge difference to their future, and their financial wellbeing.

Giving your children a financial head start

We want to do the right thing by our families. Recent research by St. James’s Place more than two-thirds (69%) of clients expect to provide some form of financial support for their family at some point2. Parents, grandparents and other family members are often keen to give help children buy their first home or start their own business.

Andrina Nisbet, Head of Development and Consultancy at SJP, says: “Start saving little and often – and early if you don’t want it to affect your standard of living when you are older. Allocating your money into different pots can really help create discipline.”

Melloney Underhill, Head of Marketing Insights at SJP, highlights another benefit: “We want our children to grow up with positive money habits. Research regularly proves that these formative years have a significant impact in later life. Introducing the benefits of saving and investing for the long term from an early age is also a great way to encourage smart money habits.”

“If they know how to save and budget, they’ll grow up more financially capable – and secure.”

How do I save for my children’s future?

As your child grows, so do their expenses – from driving lessons to tuition fees to the deposit for their first home. Here are several saving options that can help their money grow. With Junior ISAs and children’s pensions the money is locked away until they’re older. It has years to benefit from compound interest – and to ride out any bumps in the road, such as rises and falls in the stock market, is a balance for you to decide on with your adviser.

Why save into a Junior ISA

The tax-friendly is a popular option. ISAs can be flexible, simple, family-friendly ways to save, making them a good entry point for young savers. And any growth is tax-free.

Anyone can pay into the JISA – parents, grandparents, godparents, friends or other family members, although only parents and legal guardians can actually set one up. Like all ISAs, you won’t pay Capital Gains Tax or Income Tax on any growth.

There are two types of JISA; a Junior Cash ISA and Junior Stocks and Shares ISA. You can pay up to £9,000 in the 2023/24 tax year into a JISA.

Money held in a JISA is locked in until the child reaches 18, after which they could convert it into an adult ISA and continue to enjoy the same tax advantages.

Why save into a children’s pension fund

Starting a pension for a child, while they’re still decades away from their retirement, might sound like an odd thing to do, but can make a big difference. Even investing small amounts over decades could grow into a substantial pot over time. As a rule, you should put away as much as you feel comfortable with – even £100 a month will make a difference.

Children can have a pension as soon as they are born. Setting one up can bring significant tax advantages. You can put up to £2,880 a year into their pension, and the 20% pension tax relief bumps this up to £3,600.

Just like JISAs, only a parent or legal guardian can set up a child pension, but anyone can contribute. Saving into a child pension can also help reduce your own Inheritance Tax (IHT) liability by bringing down the size of your estate Payments from grandparents, for example, may be covered by the annual £3,000 tax-free gifting allowance, or the exemption for regular payments if made out of surplus income.

Do children pay income tax on their savings?

Technically, yes. Children are liable to pay tax on savings, as they have the same income tax allowance as adults. It’s uncommon, though, as children generally don’t earn money, and their savings don’t tend to earn enough interest to exceed any tax thresholds.

For the record, children are entitled to a tax-free personal allowance of £12,570 in the 2023/24 tax year – the same as adults. If this income is from savings interest, there are extra tax-free allowances in addition to the personal allowance, allowing a child to potentially earn up to £18,570 tax-free in the 2023/24 tax year. This could be increased if you include the dividend allowance which is currently £1,000.

Creating the future you want for your family

Talking to a financial adviser will help you decide on the smartest ways to save for your children. If you’d like to talk family finances and saving with a financial adviser, do get in touch today.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

An investment placed into funds (equities) would not have the security of capital associated with a deposit account with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that St. James’s Place does not offer Cash ISAs.

Sources

1Moneyfarm, 2023
2Intergenerational Wealth Transfer Survey, SJP and The Wisdom Council, 2023, survey size 887.

SJP Approved 18/09/2023

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Sovereign Wealth Limited is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. Sovereign Wealth Limited is a Limited company registered in England and Wales, Number 07115386. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.