Parents and grandparents are being reminded in the run up to the end of the tax year, that is is possible to save towards for your children’s future – despite the rising cost of living and growing financial pressures.
Becks Nunn, a financial expert at Fidelity International, said three in five (61%) of UK adults want to help their children or grandchildren achieve financial stability, yet one in five (19%) are worried they may not be able to afford to.
She said: “Back in 2008, my eldest child was the lucky recipient of a £250 voucher from the government as part of The Child Trust Fund savings scheme.
“This scheme ended on January 2, 2011. Since then, the onus has been on parents, as well as grandparents and other close relatives, to think about the financial security of the children in their care.”
Nunn said parents who are prepared to take some investment risk with their children’s savings may be able to secure longer-term financial goals.
She said a parent or grandparent who can invest the full Junior ISA allowance of £9,000 per year, or £750 each month, based on 5% annual growth, has the potential to turn into a whopping £243,561.40 once they turn 18.
The expert added: “Of course, for most of us, that’s not affordable – even with loved ones chipping in. But let’s say you could afford to put away £55.50 a month in a Junior ISA which isn’t much more than a cinema trip for two, including snacks.
“That still has the potential to turn into £18,024 by the time the child turns 18 – assuming a modest annual growth rate of 5% (which isn’t guaranteed). That’s a pretty healthy nest egg by any standards.”
“When the child turns 18, the money is theirs. They can either invest in what matters to them or use it.
“And while only a parent or guardian can open a junior account for the child, anyone can pay into one. Great news for grandparents, aunts, uncles and godparents if they want to gift money for birthdays and Christmas.”
4 ways to help you save for your child
Be realistic
Nunn explained that even small amounts can make a difference. For example, contributing £25 a month from birth could result in a pot of £8,119 by age 18 (again assuming a 5% annual growth). Increasing that to £30 a month could grow the pot to almost £10,000 (£9,742) over the same investment timescale. The value could fall of course too.
Mix up your investments
A well-diversified Junior ISA portfolio could help reduce risk. Consider funds that invest across different sectors or regions to balance exposure.
Make use of the full allowance if possible
If your budget allows, maximising the annual Junior ISA allowance of £9,000 can accelerate growth significantly. A £750 per month contribution from birth would add up to a total of £162,000.
Based on an annual growth rate of 5% this investment has the potential to turn into £243,561 (although this isn’t guaranteed). That’s a potential return of £81,561.40 So, if you can afford to invest the full allowance from birth to age 18, it could result in a pot worth £243,561.
Stay invested
Market fluctuations can be unsettling, but you have a lot of time to invest for your child if you start as soon as they’re born. Sticking to regular contributions can help smooth out short-term volatility and maximise long-term growth potential.
