Expert advice on financial planning for your child’s future
We’ve partnered with child and family savings expert Nici Audhlam-Gardiner to answer parents’ most commonly asked questions about how to plan financially for their children’s futures.
“Am I better off saving for the children in ISAs in mine and my husband’s names? This would let us keep control of the money.”
It's worth knowing that, at age 18, it isn't an automatic cheque that gets sent to the maturing teen. The money stays in a continuation account until a decision is made on what to do with it.
In terms of saving in an ISA of your own to give to your child, depending on the amount you plan to give and over what time, that money could be subject to inheritance tax rules.
Any money invested in a child’s name will normally be treated as a gift to the child at that point and start the clock running for IHT purposes meaning that, after seven years, the money becomes the child’s and outside the donor’s estate – although if the gift is out of earned income, it will be outside the estate immediately.
Also if you die and the money is in your ISA, your child won’t be able to access the money until your estate is wound up, which could be some time.
"How do I help to ensure my children can save for a property?”
The simplest way to help your child save for their property is to invest in a Junior ISA while they are under 18, and then for them to mature that Junior ISA into a Lifetime ISA when they reach 18.
By transitioning from a JISA to a LISA, the money remains untaxed, and the LISA also offers an additional bonus, with the government paying in an extra £1 for every £4 saved (up to a maximum £1,000 bonus per year).
The LISA helps keep focus on the savings goal, because the money can only be used for purchasing a house or retirement. There is a penalty to pay if the money is used for anything else.
“How can I encourage the kids to be interested in budgeting and saving and what is the right age range to be working on this?”
It's never too early to start with your kids. When they are very young, basic numeracy is the best starting point. Counting, adding, taking away.
As they get older, there are many teachable moments if you can expose them to your own savings plans, budgeting, etc.
“What is your number one tip for anyone wanting to start saving for their children's future?"
With saving, the earlier you start the better, but it’s never too late. Even the smallest amount saved regularly, thanks to compound interest, can result in good returns.
So, my number one tip is: however small the amount you can put to one side is, make it consistent and over time it will be a useful amount.
“I want to start an account or investment for my six-month-old baby that she can use later in life. What is the best way to go about this?”
A Junior ISA (JISA) is the simplest way to invest money that your daughter can get access to when she turns 18, all those years away. The JISA is a tax-free wrapper, so she won't lose any of the interest she gains to the tax man.
In fact, because the maturity date for your daughter's investment will be so far away, she's a perfect candidate to invest in stocks and shares. These investments can go down as well as up so your child may get back less than has been put in.
But in every 18-year period over the last 50 years, stocks and shares have grown more than cash accounts (where money is protected). That finding comes from a Barclays study in March 2020.
“What guidance can you give to parents of disabled children who won't have mental capacity? What are the options post-16 and post-18?”
For young people who lack mental capacity, accessing their savings is not a simple process. Under current legislation, parents and carers need to make an application to the Court of Protection, which can be time-consuming and requires the completion of a lot of paperwork.
The savings and investment industry recognised that, for smaller amounts, such as Child Trust Funds, this process was unnecessarily complex and has lobbied the Government for a simpler solution. As a result, the Government has recently completed a consultation on its proposed Small Payments Scheme, which is looking to better support parents and carers in accessing the young person's funds.
The results of this consultation will be known later this year and we are hopeful that it will make the process easier to navigate. However, in the meantime, many financial companies, such as OneFamily, have put their own procedures in place to make life easier. So a good starting point would be to contact your provider to find out how they can help you.
“Should we all be encouraged to start pensions for our children from a very young age?”
It's never too early to consider pensions. Pensions you can set up for children present an alternative to Junior ISAs. They also attract tax relief, and have a separate allowance to the JISA allowance. The allowance for a Junior Self-Invested Personal Pension (SIPP) is £3,600 versus the £9,000 for Junior ISAs.
Your child won't be able to access the money until they are 55, and that’s likely to go up over time. They can take control of where the money is invested from 18. They aren't useful in terms of helping with a house deposit or university, so while thinking about retirement you might also want to think about what they will need between now and then and split the investment. Of course, with 50 years of investment ahead, that's a long time to benefit from compound interest.
It’s also worth bearing in mind that tax rules and reliefs such as inheritance tax are likely to change between now and your child’s retirement. The amount they might get back when they’re ready to draw on their retirement savings is only a projection - it’s not guaranteed.
“We're a low income family with three kids and don't have tons of money to put away every month. What would your advice be for people like me?”
The best advice is to just start. That sum a month will soon add up. Depending on how old your children are, compound interest will have a chance to make that money really work for your children and give them something they can use when they need it.
How much should I be saving for university and when should I start? Please can you advise how families without significant savings can best prepare for further education?
Anything you can save now in a child's tax-free savings account, like a Junior ISA in the child's name, will give them access to the funds around university age (18). Besides saving little and often for university, the best preparation is teaching your child good financial sense and budgeting for when they are out in the world.
Where is the safest place to put money for a child? ISA, bank account or a Trust Fund?
There are two things to think about when talking about safety. One is the risk that you might not get back what you paid in or a good return – a bank account returns your balance but inflation eats value. An ISA can also be in cash but can invest in stocks and shares so its value will go down and up and, depending when you need to take money out, you might not get back what you hope, although it does have a chance to grow. A trust fund is like an ISA.
Secondly, you need to check your money is safe if the firm you give it to goes bust and can’t pay you back. All investments and cash accounts are covered by the FSCS up to £85k so if you have more than that then it’s wise to spread it around with more than one company that is covered by the scheme. Don’t be tempted by unregulated or overseas schemes unless you’re a very confident investor and you can do your own research.
"What is the best age for a parent to take out a funeral policy to prevent children being financially burdened in the future?"
It’s never too early to consider these things. Alongside life insurance, a funeral policy can be a way to ensure those we leave behind aren't burdened. Some funeral policies only become available after a certain age, but the minimum age you need to be is 18.
It will be a personal choice, weighing up the planned costs of a funeral, the length of the policy and total costs. Typically, the earlier you start the lower your monthly payments.
Consider whether you want something which is specifically to pay for funerals, or a broader protection for the family if you die (a life insurance) - the latter sometimes have a minimum age (often starting at 50 years old) and sometimes will come with an additional free funeral funding benefit as well as the main life insurance.
Consider if you will get good value as it may be better just to put some savings away for that purpose, especially if the long-term charges on the product mean you will pay a lot more in than the benefit your family receives.
About OneFamily
“As a member-owned business, we are interested in helping create a better financial future for Britain’s young people. From providing accessible, easy to understand products to awarding education grants and giving extra support to customers who need it, we are focused on Inspiring Better Futures.”