*A collaborative post
Putting some funds aside for your child’s future is something that you can’t start thinking about soon enough. It might seem impossible when you are staring into the eyes of your newborn, but university, that first house, even children of their own will be just around the corner.
As your kids get a little older, having savings and investment products for them is also a great way to educate them in the important topic of personal finance. This is an area in which our own generation has been shown to be largely incompetent, a fact that is certain to come back and haunt many of us in the years to come.
Do as I say, not as I do is a motto that many of us carry through life. Here are some tools that might help the next generation be better savers!
Children’s savings accounts
At the simplest level, you can set up a savings account for your child with any bank or building society and they can start managing it for themselves on reaching the age of seven. It’s a great way to teach them those money management habits from an early age.
As with adult savings accounts, there are instant access or regular versions. The former can be dipped into at any time, while the latter offer better rates of interest. There are so many child savings accounts around it can be hard to know which to choose – a comparison website is a good place to start looking.
Even financially incompetent Generation X-ers know the concept of the cash or stocks and shares ISA as the most tax-efficient way of saving or investing. What you might not know is that your child also has a tax-free entitlement, which currently stands at £4,260.
A parent or guardian has to open the account, but the money itself belongs to the child. Every child is allowed to own one Junior Cash ISA along with one Junior Stocks and Shares ISA.
Yes, they still exist, and they essentially represent a risk free way of potentially winning big. Some people think premium bonds are just some old-fashioned version of Lotto, as you have a holding and are entered into a monthly draw whereby you can win up to £1 million.
The difference is that you can sell your premium bonds any time you like – so there is not the sense of “throwing money away” that there is with a lottery ticket.
You need to be 16 or older to buy premium bonds, but it is possible to buy them on behalf of a child. And anyone can keep on buying more up to a maximum holding limit of £50,000.
A pension plan for kids? It might sound crazy, but from a tax perspective it makes all sorts of sense. You can set up a pension now, start contributing to it and then transfer it to your child when he or she reaches 18. Tax rules mean you could tax-efficiently set aside anything up to £2,880 each tax year and the government will automatically top up the contribution by 25%, bringing the annual contribution up to £3,600.
Are you saving for your children’s future? What are your top tips?