This is an article that I can really relate to. As a parent, I want to invest in my children’s future and we are fortunate enough in this country in having a number of different vehicles for doing so.
For years, Child Trust Funds (CTFs) were the best of very few available options when saving for one’s children. However, the emergence of the competitive Junior ISA (JISA) has provided a more flexible option. Saving in a JISA has its benefits; an allowance of £4,080 in which savings / investments grow free of income and capital gains tax, as well as being accessible at age 18, perhaps to fund further education or a house deposit. Considering potential growth of 5% per annum (the Financial Conduct Authority's intermediate illustration rate for ISAs) and a 1% charge, £300 a month could result in a pot of £579,000 by the age of 18 - an impressive sum. Of course, this could be higher or lower dependent on the actual growth achieved and the buying power would be affected by inflation.
Interestingly, 70% of JISAs are held in cash. Given the long-term nature of these products, and the current low-interest environment one might expect the balance to be more even - investment JISAs bear more risk, but have the potential to generate higher returns than their cash counterparts.
There are other options. Child Self-Invested Personal Pensions (SIPP) are also on the rise and HRMC reports 60,000 children now have them. Up to £3,600 per annum can be contributed to the pot with contributions up to this level receiving 20% tax relief from the government. The SIPP is less accessible, in the sense that the child can only access this money from age 55, however, this long timescale involved affords them the ability to invest in assets not appropriate for the short-term such as equities. Deciding between a JISA, SIPP and any other means of saving will depend on your individual circumstances and disposable income, so seeking advice from a professional financial adviser is recommended.
Getting the balance right between saving for our own retirement and supporting children is a tough one, as the emotional pull to support our children is strong.