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Childrens savings - I am so stupid

(42 Posts)
frogwatcher1 Mon 18-Mar-13 11:32:36

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.

PoppyWearer Mon 18-Mar-13 11:41:04

It depends if saving for your DCs is going to risk that you (as a family) go into debt.

We hit a point last year where we went into debt due to some unexpected expenses (washing machine went kaput, car had a puncture, etc etc) whilst the DCs' savings were quite substantial (but inaccessible). We decided it wasn't worth persisting with the DCs' savings whilst we couldn't make ends meet. (We have since got back on track.)

Speaking to friends and reading on here I have heard of lots of people saying they have had to use their DCs' savings to stay afloat at various points.

We do have Junior ISAs/CTFs and pensions for our young DCs but with interest so low are making minimum payments into them as the money is a) earning little interest for them and b) locked away until they are older. We are then paying a monthly amount into instant-access savings and if we need to dip into it to stay afloat, we will, otherwise at the end of the year that will get paid into their savings too (and some into ours!)

Could you maybe open a Junior ISA (before 5th April!) with the money you already have saved, and then put extra money aside into an accessible savings account for now?

OneLittleToddleTerror Mon 18-Mar-13 11:55:42

I know lots of people probably won't condone it. But we are saving for DD in our own shares ISA. It's the same logic as Poppy that if things go wrong, then the money inside a Junior ISA is locked away from us. But if it's in our own ISA, then we can use it for family emergencies. I think it's a fair compromise because say if we lose our job, then she'd have to pay her own way through university.

As for you losing money in your Junior ISA. I assume you don't actually mean that? You actually still have slightly more money then you put in isn't it? I don't think any cash savings can beat inflation. But saving for it is still worth it as you won't be able to magic out, say, £20k when they turn 18, can you?

CogitoErgoSometimes Mon 18-Mar-13 11:59:38

I decided to move the bulk of DS's cash savings into long-term bonds. Still not amazing interest rates but slightly better than savings accounts. I've also had a unit trust running for him for the last 13 years in which I buy varying amounts of units depending on what I can afford. Obviously it's higher risk, dropped like a stone in 2008 (!) but has recovered well since and I'm hoping the returns by the time he hits 18 are better than the cash.

The way I see it I'm already investing for myself, pay extra off the mortgage and contribute to a pension so where am I going to put this money otherwise?

OneLittleToddleTerror Mon 18-Mar-13 12:05:46

Cogito what's the benefit in saving it in the child's name vs under your own name?

frogwatcher1 Mon 18-Mar-13 12:18:25

Thanks all for replying.

Onelittletoddler - no you are right. I don't mean actually lose the money as it will still be a little more than they have right now. But in real terms it loses value as it will buy less due to inflation being higher than the interest they get.

I wouldn't be-able to magic £10,000 out of thin air in 10 years time - that is certain. However, it still grates on me that my saving £10,000 between now and then, could theoretically but a car at some point in that time, but won't be worth enough to do so when they get it. It still feels as if by saving I am wasting my money.

frogwatcher1 Mon 18-Mar-13 12:21:52

I am even confusing myself with my replies!!

Please please can somebody explain to me (so I stop feeling so stressed about this) how saving is worth it if the interest doesn't keep up with inflation. I understand Toddlers point that it is a way of ensuring there is money available at some point in the future, but in real terms it is a way of ensuring that the money in your pocket now is worth less when you decide to use it. Isn't it?

orangepudding Mon 18-Mar-13 12:24:42

We put our kids savings into bonds as the interest was best we could find. We tied it up for a year, we can get money out if we need to but the kids will lose all interest. Anything we put in to savings for them this year will be added to next years bond.

frogwatcher1 Mon 18-Mar-13 12:28:18

What is a bond and what rate of interest would be expected? Do you put them in the dc names? Do they pay tax on the interest?

Sorry for so many questions.

megandraper Mon 18-Mar-13 12:29:27

frogwatch - yes, savings rates are abysmal now, and the money is losing value in real terms.

however, what is the alternative? 1) Not saving at all, which means there will be no money at all. Or 2) Putting money into an alternative form of investment which may beat inflation, but will also be riskier.

We save in a stocks and shares Junior ISA/Children's Trust Funds (DC3 has the ISA, older ones the CTFs) - equities are more likely to beat inflation than cash savings, but also carry a higher risk. Over the long term (which children's savings are likely to be), equities tend to outperform savings rates.

Another option is to look at children's pensions - again, these will be linked to the stockmarket rather than to a cash savings rate, and with the long term prospect, have a good chance of growing considerably. Downside is that children can't touch them until they are retiring.

orangepudding Mon 18-Mar-13 12:31:11

This is what we got but I'm pretty sure the rate of interest was 1% higher.

OneLittleToddleTerror Mon 18-Mar-13 12:31:59

frogwatcher it is worth it if you have extra cash. If you have spent on the car, what would it be worth when your children are 18? I'm sure it's less than the cash you'd still have. You don't have to have a lot of money to make a difference. A friend got his first flat about 8 or 9 years ago with £8 deposit from her gran. It could be the first car so they can use it for their first job? Or the gap year they really wanted to do?

As others have said, many are saving in bonds, which have higher return than cash. I'm using a FTSE index tracker. It's currently posting pretty good annualised returns for me because FTSE 100 is over 6400. But obviously this goes up and down a lot and was really bad a couple of years ago.

nextphase Mon 18-Mar-13 12:33:09

yes, it may not be keeping up with inflation, but unless you buy ever christmas and birthday present, every stick of clothing and shoes they need now, so you don't need to save, what are you going to do when yuo need those things?

Some savings, even if not keeping up with inflation, are better than none (assuming your debt is paid off)

You could use the money to pay of the mortgagfe (assuming you have one), and then when that is paid off, start saving for the kids?

Saving in the childs name has tax advantages - ie tax free til they earn over a certain amount a year). if its in your name, and you pay tax, the savings will be taxed.

frogwatcher1 Mon 18-Mar-13 12:34:07

bedhopper - I am wondering if not saving at all is the answer. It would be different for me as we have always saved what we can but I hate the thought of such a loss in real terms if interest rates continue as they are.

I wonder about investment in jewellery or art or wine etc? But then that is a stupid thought as I wouldn't know where to start.

I think for people like me who save a little maybe not saving is the answer. It would be different if there was a lot of money floating around maybe.

Maybe I will look at equitites - I have never done that - have always taken a safe route!!

frogwatcher1 Mon 18-Mar-13 12:37:38

Nextphase - i agree that some savings are necessary and I have those. Enough for a rainy day.

It is the extra - the long term childrens saving that I feel so miserable about as it is likely to sit for so many years and if each year it loses in real terms then it takes quite a hit over 20 years?

It sounds as if I am being silly to worry really - everybody else seems quite confident and sure.

Thanks all.

Sugarbeach Mon 18-Mar-13 12:37:59

OP, have you no mortgage to pay?

If you are worried about the cash losing value in real terms, you should pay off your mortgage first.

orangepudding Mon 18-Mar-13 12:38:14

Even if you can save 5k for your child it could really help them. If you can afford to save it's worth it.

Investing in jewellery/art is a huge risk. I think I would only consider that if I could afford to lose he money I was investing.

orangepudding Mon 18-Mar-13 12:43:45

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!

Sugarbeach Mon 18-Mar-13 12:43:53

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.

frogwatcher1 Mon 18-Mar-13 12:44:32

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!!

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.

frogwatcher1 Mon 18-Mar-13 12:45:37

And the mortgage was little in the first place - rubbish house which was cheap!!!

Sugarbeach Mon 18-Mar-13 12:51:34

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 I will definitely flamed on MN for encouraging greedy landlordness...

OneLittleToddleTerror Mon 18-Mar-13 12:57:34

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!

frogwatcher1 Mon 18-Mar-13 12:57:44

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.

OneLittleToddleTerror Mon 18-Mar-13 12:59:02

Oh forgot to say DH said even if we don't save a lot, it could be driving lessons for DD grin

He didn't get his from his parents and learned much older than me. He'd always wished he has learned young.

frogwatcher1 Mon 18-Mar-13 12:59:09

And I will look at index trackers and I havent before - thanks Toddler.

Sugarbeach Mon 18-Mar-13 13:04:57

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.

megandraper Mon 18-Mar-13 13:07:04

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.

frogwatcher1 Mon 18-Mar-13 13:07:39

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.

Polyethyl Mon 18-Mar-13 13:12:33

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.

frogwatcher1 Mon 18-Mar-13 13:45:05

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.

OneLittleToddleTerror Mon 18-Mar-13 13:56:39

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.

frogwatcher1 Mon 18-Mar-13 14:08:01

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.

HaveAGoHeroine Mon 18-Mar-13 14:10:06

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.

OneLittleToddleTerror Mon 18-Mar-13 14:12:30

frogwatcher btw, have you discovered yet?

frogwatcher1 Mon 18-Mar-13 14:14:54

Toddler - yes I had. But havent looked on there for ages!! Stupid of me.

CogitoErgoSometimes Mon 18-Mar-13 14:31:36

"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.

nextphase Mon 18-Mar-13 18:15:15

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.

CogitoErgoSometimes Tue 19-Mar-13 07:12:28

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.

MrsHoarder Tue 19-Mar-13 07:22:01

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.

janinlondon Tue 19-Mar-13 10:16:22

"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 Otherwise everyone could be stashing money away in their kids' names as a tax dodge.

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