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Childrens savings - I am so stupid(42 Posts)
I know that for some time now there has been a lot of talk about savers being poorer with interest rates being so low. However, as we have little in savings (and maybe because I am lazy) I have given it little thought.
Today I decided to investigate the best way to save for the dc future as they have a couple of thousand each in childrens bank accounts (from gifts when they were little) and I want to add a bit more, but I have just realised that the actual value of their savings is diminishing each year as interest is so low and inflation a lot higher. I know this is probably obvious but not to me until now!!!
Is it worth saving any more for them then? If so, does anybody have any recommendations ? From what I can see all of the Junior ISAs etc are running at very low interest (well significantly lower than inflation) and therefore is it not just a way of losing money?
I'm not the best financially (and we don't have a lot of money) so please don't flame me.
"The child gets the interest tax-free because they are not a tax-payer." This only applis if the money is in an ISA or if the money came from sources other than the parents. If the money came from the child's parents, it is taxable income for the parents. Inland Revenue do pursue this. Its not just a theory. (See moneysavingexpert.com) Otherwise everyone could be stashing money away in their kids' names as a tax dodge.
The advantage of the child isa is if you pay tax
And use your full isa allowance every year it gives you an extra allowance but that allowance is only for child savings and is locked away.
My savings and investments are inn my name as I don't pay tax and dh doesn't exceed his isa allowance. This may change should our incomes go up, but the last place we will put money for ds is in a children's isa add we want the security of bring able to hey to the money if we're in trouble and the control over when he gets it.
They may decrease in value in a five year period but if you take any 10+ year period, house prices generally go up. There's a shortage of houses, we're all living longer, more people are living by themselves than in the past.... As a long-term (rather than short-term) investment therefore your house is still fairly safe and, if we're talking about saving for a child over an 18 year span, that classes as long-term.
houses decrease in value also - certainly house prices have been going down round here for the past 5 years. There is no way ours would sell for what we bought it for.
"Cogito what's the benefit in saving it in the child's name vs under your own name? "
The child gets the interest tax-free because they are not a tax-payer. There are specific child-oriented investments like ISAs (not just cash ISAs). Plus I like to use up my own ISA allowance, for example, on myself. I'd never personally raid a child's savings unless I was in very dire financial straits.
Toddler - yes I had. But havent looked on there for ages!! Stupid of me.
frogwatcher btw, have you discovered www.moneysavingexpert.com/ yet?
We're saving what we can for the DC for the future but we are doing that in savings accounts and ISAs in our own names so we always have access to it.
My mum was stuck after my Dad died and ended up spending the savings they had put aside for my future. Whilst the money had be saved with my future in mind it was better spent keeping my 10 year old self fed and clothed.
When I've discussed ISAs and child trust funds with my DM she warned against them, she says you never know when you might need access to that money to keep it where you can get to it if necessary.
Toddler - I am very prudent with money to be honest and I do have some little luxuries, but I always have an eye on the pounds. Comes from being very poor and not having an awful lot now I think. Fortunately dh is the same(ish).
I think you are right. I am not being rewarded for being loyal to my bank and know I must put the effort in to look around. I think I need to accept that I will continue to save (the worrier and prudent side of me knows that this is the best option really, however glibly I can say 'the best thing is not to bother') but I need to be far more active in keeping an eye on interest rates etc.
There has been some great help and I will use it - thanks.
frogwatcher no one can answer your question on whether to save.
As an counter example to your story. DH has very working class parents with a typical attitude of not saving anything. MIL is especially into treating herself. She justifies every spending on it's a treat, it makes me happy. They are now in a very difficult financial situation. They are retired with an outstanding mortgage. (Entirely their own fault as they took out yet another 25 year mortgage a couple of years ago). FIL has dementia and the doctors said he is only as good as his next stroke. Without two pension incomes, MIL will lose their home since she can't afford the repayment. She is still having her head in the sand, thinking she would be left with the equity they have paid in even if the bank reposses the house.
I know you aren't in this situation at all given you have nearly paid off your mortgage and therefore must be pretty prudent with money. I guess you can strike a balance of having some luxury and some savings? Like you also pointed out, the mistake your parents made was not keeping an eye on the investment. The savings might be in those 0.1% interest rates accounts for all you know. The banks have the really great attitude on awarding loyalty with crap saving rates. I really don't understand, for example, why I need to keep opening new cash ISAs with the same building society to get their new headline rates.
What do you think you will do then Polyethyl? Its a difficult one. Everything the above posters have said makes sense re saving something is better than nothing for when the dc are older. But then what you say makes sense too and when saving is hard work (going without a lot of things day to day - nothing essential but a lot of luxuries) then it is upsetting thinking it will potentially be worth very little!
My parents saved for me. It was hard work for them and they went without. However when it was time to give it to me it wasn't even enough for a decent car. It was a real shock to them as they were so busy with life and quite hard up that it had never occured to them that it may be worth less with time in real terms (and it wasn't particularly well invested for those days when interest rates could be quite high). I think they wish they had used the money to have some luxuries when it was worth more - and to be honest I wish they had too.
I'm considering the same question, as my daughter's christening is approaching. Locking money away for 18 years, when we might have more quantative easing, just seems stupidly wasteful. Money that is a generous gift now could be worthless in 18 years time.
I will prioritise looking at all the above this week. I have shied away from stocks and shares ISA so haven't one in my name (I have a cash ISA). I could put money in there for the kids - the advantage being that they couldn't access it until I thought they were ready. I am just scared of it losing too much but I suppose over a long period of time it is likely to not do so.
Yes, agree with Sugarbeach - dripfeeding into equity investments definitley a good idea - (assuming there's no fee disadvantage) small monthly payment into an index-tracker type of equity investment is a good idea.
Definitely worth maxing out your yearly ISA allowances.
A good way to invest in stocks and shares is through the Index tracker and by drip feeding it regularly (rather than a big lump sum at a single point in time)...I've been doing the FTSE 250 tracker and it's done quite well comparatively.
I also agree with the poster up thread not to get into anything you don't understand.....people who sell you products that are impenetrable by jargon, I just wouldn't trust the product or the motive of the people selling it.
And I will look at index trackers and I havent before - thanks Toddler.
Oh forgot to say DH said even if we don't save a lot, it could be driving lessons for DD
He didn't get his from his parents and learned much older than me. He'd always wished he has learned young.
Sugar - its a little scary - no idea why. My dh seems to have an attachment to the mortgage and doesn't want to pay the last little bit off.
I did consider saving for a deposit on another house and using that as savings for the children. However, life is getting more and more expensive - we are struggling now more than ever before and have been married 10 years plus. I don't know that we will save as fast as we have in the past as our income isn't huge at all - about high end of average - and at the moment life is tough. However, I still want to commit to the children's future if I can.
I think in conclusion I will investigate bonds, stocks and shares ISA. It will only be a little money but then like somebody said - anything is worth more than nothing.
frogwatcher if you have never looked at equities before, start by looking at index trackers. They are the easiest to understand and have the lowest fees. Some well known cheap discount brokers are hargreaves lansdown and fidelity. But obviously don't buy into it unless you understand what you are buying! It's easier to understand than jewellery or fine art though!
Congratulations on being almost mortgage free, it's a big milestone....don't know how you could think of yourself as "stupid"....OK, in that case, I would be thinking about saving a big cash deposit to buy another house....if you don't like the sound of savings, stock/shares ISAs etc..
So...there you go....now I will definitely flamed on MN for encouraging greedy landlordness...
And the mortgage was little in the first place - rubbish house which was cheap!!!
Agree with Sugarbeach.
We have been lucky enough to get a large redundancy payout (well DH has), and did consider the children's savings...but if we pay off as much mortgage as possible now, we will have an awful lot more money in the future. In the short term, our outgoings have been reduced by about £1k per month (our mortgage was massive), and I hope that if we keep going at the current rate, we should be able to pay off the mortgage, or have it at a very low level by the time the DSs are 18. We will then be able to fund university or whatever at that point.
I am not very mathematically minded, but paying off £1000 of mortage now, will save us paying something like £1800 in the long term (ie win of £800). Saving £1000 will mean that we get about £10 interest, and inflation erodes it - ie a loss. Therefore savings (other than immediate rainy day) are not a priority, paying off mortgage debt is.
Am also suspicious of putting money into CTF - they are starting to charge an annual fee in some cases. Or any form of savings that my DSs could spend on a porche at 18.
Sugar - mortgage will be paid off very soon as that is what i have concentrated any spare cash on until now. My thoughts are that the money from the mortgage payments each month could soon go towards childrens saving. However, theoretically the house will stay worth what we have paid plus more. The childrens savings won't in real terms so it feels more worrying.
But then I am no accountant and obviously am worrying too much!!
The way I approach it (and someone please point out if I'm missing something) in order of priority for my spare cash is as follows....
Set up an emergency fund.
Pay off any credit card and loans.
Pay the mortgage off.
At least once the mortgage is paid, you own your home and you will continuously "save" in the future the amount you would have had to pay in rent or mortgage.
I agree with Sugarbeach, putting savings into your mortgage can save a large amount of money in interest payments. Last year we overpayed a lump sum of our mortgage, the lump sum was worth almost double due to the amount of interest that was cut off!
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