Help with son's junior ISA

[darasda]

I have heard time and again that the main disadvantage of a Junior ISA is that at 18 a young person could take control of a potentially huge amount of money.

If taught properly about money they could use it sensibly and this would give their launch into the world turbo boosters.

However, they could blow the lot and also if they have turned out not sensible they could potentially go off the rails more easily with that money.

My son is still quite young but I have been saving into a S&S JISA for him since he was born and he could come into roughly 300K at 18.

Any advice on how to avoid this problem? Best advice on teaching kids about money?

Thanks all

We had the same concerns about our sons CTF. When he turns 18 it will have about £30,000 in it. We started telling him about it when he turned 14, warning him that it was going to be a large amount but it was for either uni or a deposit for a flat/ house. He's 15 now and we still mention it every so often. I'm hoping that by making sure he understands that we've spent his whole life saving it for him, he won't blow it all/ waste it. He's already talking about doing an apprenticeship after a levels, and has said he doesn't want to move out too soon! I guess we won't know how successful we've been until he gets access to the money

@darasda three hundred thousand ?

[quote trytoignoreit]@darasda three hundred thousand ? [/quote]
Well, yes!! Based on:
Currently 30K
9K a year, at 8% rate of growth of index funds on average, compounded over another 13 years.
I know, I find it hard to believe myself too.

We weren’t able to save so much when the kids were younger, so now they are teens we are playing catch up. I have told them that if they don’t access it until they are 25 we we keep paying into it until that point.

Well, other than going back in time and not opening a junior ISA, all you can do is try and drum it into him and then cross your fingers and hope it’s worked.

Literally nothing else that you can do. I wouldn’t be putting any more in either, put it in a savings account in your own name.

Stop paying into it!!

@darasda wow that's amazing for them. No advise really, just be the little cricket on their shoulder.

My DC's get £50 each per month, the rate is terrible and they keep dropping it, but it's better than nothing. We don't have other savings so it's a good to lock it away 🔒

*advice even that one always trips me up

If you do not want them to have access to that amount that 18 (and I wouldn’t), then you can stop adding to the junior ISA and save the equivalent under your own name. Then make a judgement on how much and when you give it to them.

They will get access to a JISA in their name at 18. At that point you may advise but not insist on anything.

As a PP says, you can mention you’ve been saving all their life for the purpose of education/house deposit/whatever, and you can make sure they’ve had practice managing their money like pocket money and part time jobs but an awful lot will just be down to maturity and temperament at 18. So if you want to avoid any risk at all, stop saving into the JISA and make alternative plans.

They can only take the money if they know about it...

DS has £12k in an ISA (it was a junior) - I didn't tell him about it so when he turned 18 there was no worry of him wasting it. A drop in the ocean compared the the £300k in the OP I know, but still enough to miss if frittered away!

I plan to tell him about it when he is in a situation where it will be of benefit to him, which isn't now.

Just to add though, he is autistic and despite being really super clever he lacks the ability to understand the value of money. I made this decision for him, and I believe it to be the right one.

They write to the ‘child’ in advance of them turning 18. It’s really not good advice to say keep it from their knowledge. I understand why you might feel this is a good thing but it means intercepting post addressed to them, lying by omission etc. And the account is legally transferred to their control - the bank won’t allow you access or to manage it unless you are signing in fraudulently under your child’s name or you have legal power of attorney over finances.

I do understand why you may feel this is a good decision but in general the best thing is to be open.

Interested in responses to this as both DDs will be in an almost identical position to OP’s DS thanks to very astute and generous grandparents...

Thanks all,

Very useful messages. I don't like the idea of hiding it from him either. I think it's very clever this 2 year period from 16 where he's in the driving seat but can't withdraw. Gets them used to the idea, do the research etc.

I think early financial literacy education is the key. Wish my dad had done that when I was a kid. Ironic because he was an actual bank manager too!!

They write to the ‘child’ in advance of them turning 18. It’s really not good advice to say keep it from their knowledge. I understand why you might feel this is a good thing but it means intercepting post addressed to them, lying by omission etc.

I don't need to intercept post like a dodgy criminal, he wouldn't open a letter if I handed it to him. I file the letters away in my document folder and forget about them. It's an annual letter containing details of the interest earned. I will take they 'lying by omission' though - I'm fully happy with my decision because I do know what is best for my son.

And the account is legally transferred to their control - the bank won’t allow you access or to manage it unless you are signing in fraudulently under your child’s name or you have legal power of attorney over finances.

I don't need to manage it. It's managed. It was opened. Money was deposited. It was left alone.

I do understand why you may feel this is a good decision but in general the best thing is to be open.

The best for who? It certainly wouldn't be the best for my son. You don't really get to decide what is best for someone else's child. I am 100% happy that I am acting in his best interest, and for me, that is all that matters.

Just leave that as it is and make future investments into something you are more comfortable with.
Or when they get to 17 work with them to plan what investment plan their money will go into once it matures, so they expect in no way for it to be all to do with what they want , or you could allow £5k or something from a fund like that for holiday or clothes or whatever but they know the rest is getting tied up straight away.
It's a wonderful start you are giving them with that, lucky kid

I thought we were doing well at 15-20k a child, but 300k is some trust fund!

Mine are 15. I'm hoping this money will go towards uni. It has to really as I can't afford for both of them to go at the same time! They know this, so hoping they will be sensible.

The best for who? It certainly wouldn't be the best for my son. You don't really get to decide what is best for someone else's child. I am 100% happy that I am acting in his best interest, and for me, that is all that matters.

I clearly said “in general” i.e. as general advice on a message board about Junior ISAs, keeping it from a typical 18 year old wouldn’t be the best advice.

I’ve got no interest in telling you specifically what’s best for your son - why would I? Or for anyone else’s specific child. But as general best practice advice, for people who are considering this, I wouldn’t recommend keeping an adult child ignorant of their financial asset.

"9K a year, at 8% rate of growth of index funds on average, compounded over another 13 years"

OP, there are quite a few assumptions there. 8% is a very optimistic rate of return. Yes, there are funds which have done even better in the last few years, but who knows what the returns will be like over the next 13 years.

Also, stuff happens, you might not be able to afford to contribute that much every year for the next 13 years. I say this not to jinx you but because IMHO thinking about long-term investments requires thinking about how your circumstances might change.

The world is full of siblings who grew up in the same family, same education, same environment, same everything, yet one turned out to be a money-frittering t*, and the other turned out OK. Those who think it cannot happen to them are deluded.

Have you thought about stopping contributing after the ISA reaches a certain amount, then either investing in your name or setting up a discretionary trust fund? The latter is an expensive headache, really only worth it if the sums involved are large enough, but it does give you, not the child, total control, even after the child turns 18.

Investing in your name may be subject to tax, but you can still invest in an ISA (unless you max out your ISA allowance already) plus the first £12k or so of capital gains outside ISAs are not taxed.

@flashylamp

"I don't need to intercept post like a dodgy criminal, he wouldn't open a letter if I handed it to him. I file the letters away in my document folder and forget about them. It's an annual letter containing details of the interest earned. I will take they 'lying by omission' though - I'm fully happy with my decision because I do know what is best for my son."

If this is what you want to do, be ready to face the consequences. Every person is different, but I know I would have reacted very, very furiously with my parents if they had hidden it from me after I turned 18 (16, actually - 16 is when a child can start controlling the ISA).

Not to mention he's likely to find out anyway: opening the post addressed to him, or maybe he opens an account with the same bank and learns of the money that way, or he might even get a call from the bank...

OP, as your child reaches 16, maybe you could try to apply pressure to convince him to lock up part of the money for longer periods of time. Eg let's say he goes to uni and you budget, I don't know, £15k of expenses per year. You could have the money locked up in 1-year, 2-year etc saving accounts so that £7.5k + interest become accessible every 6 months, and not before. This would limit the risk of him frittering it away. Of course, if he really wanted to fritter it away and not invest it like this, there's nothing you can do.

@ParentOfOne

"9K a year, at 8% rate of growth of index funds on average, compounded over another 13 years"

OP, there are quite a few assumptions there. 8% is a very optimistic rate of return. Yes, there are funds which have done even better in the last few years, but who knows what the returns will be like over the next 13 years.

Also, stuff happens, you might not be able to afford to contribute that much every year for the next 13 years. I say this not to jinx you but because IMHO thinking about long-term investments requires thinking about how your circumstances might change.

The world is full of siblings who grew up in the same family, same education, same environment, same everything, yet one turned out to be a money-frittering t*, and the other turned out OK. Those who think it cannot happen to them are deluded.

Have you thought about stopping contributing after the ISA reaches a certain amount, then either investing in your name or setting up a discretionary trust fund? The latter is an expensive headache, really only worth it if the sums involved are large enough, but it does give you, not the child, total control, even after the child turns 18.

Investing in your name may be subject to tax, but you can still invest in an ISA (unless you max out your ISA allowance already) plus the first £12k or so of capital gains outside ISAs are not taxed.

Thanks for your detailed and thoughtful post.

All investing is assumption on one level, calculated risk taking. But all research shows that the S&P500 tracker index funds which is what his JISA is invested in (through Vanguard btw in case anyone asks, highly recommended) grows by that amount on average. It might go tits up but then again it might not, and by then it'll be too late to start.

Yes he could turn feral and go off the rails and take all his mates on a booze and drug fuelled bender to Ibiza when he gets access to it but as most people say when discussing this topic if he's like that there will be lots of other things to worry about. As it happens he's a lovely wee fella with a good temperament and I will make sure I teach him about money.

As for keeping up the money I am fortunate enough to be a high earner and so that's unlikely to be an issue unless his mother turns feral (much more likely than me or him in any case) and we divorce.

I'd be very interested in people's interesting stories and tips about financial literacy and teaching kids to be good with money so please keep them coming.

TIA

Well, look up the total return (ie including reinvestment of dividends) for the S&P between 2000 and 2011: it basically took 10 years and a half for the S&P to get back to where it was at the beginning of 2000 (we're talking about dollars here, without taking into account the GBP / USD exchange rate). After that, it's been growing like crazy, but a decade is not a short period. Of course I'm not saying to keep it all under the mattress, just to be mindful that the future is unpredictable.

Our kids all have junior ISAs. As we’ll be supporting them through university and likely beyond , they understand that money in the ISA pots isn’t for frittering away or wasting on stuff mentioned upthread. I’ve got no worries about this at all

OP, have you set up a pension for the dc? If not, you could divert some of the annual £9k into a pension fund for them (I think non taxpayers can pay in around £4k pa).

Should be able to benefit from similar growth, plus basic rate tax added on and will provide a good start for them to add to when they can begin contributing.

They won't be able to access it until 55/57 though...

this is why my kids have only £10K each in JISA and instead have a SIPP each in their name.

As for pensions and tax relief, just bear in mind that pensions defer taxes, they don't get rid of them altogether. If you put money in a child pension, the taxman gives you tax relief at the basic rate. When that money becomes accessible, the child can get 25% of it tax free, and will pay tax on the rest. So there is still a benefit, but not as big as never paying tax at all.
The money in a pension grows tax free, but so does the money in a junior ISA.

I personally wouldn't contribute to a child's pension until and unless I am reasonably certain they have a decent pot of readily accessible funds for life's most pressing needs (education, housing, etc) but to each their own.