Investments or savings for kids?

[Daintydino]

My children are young teens and we’ve been lax about saving for them. I’d like to start now.

Have considered a stocks and shares ISA in my own name (Nutmeg if it matters) or just a regular junior savings account.

Not planning to put masses away, maybe £50 per month each.

What would you do? I’ve only really started looking into it today and very nearly did the S&S ISA but I think I’m rushing into it.

PS please talk to me as if I’m 5 because this is all very new to me.

Should add planning to leave well alone for at least 5 years, ideally longer. Doing something in my name is tempting for this reason.

Either is okay, and it’s great you’re going to start.
Which would be worse for you:

1. the money you put in losing buying power by the time you take it out? - this is what is likely with savings over the long term as the rates rarely beat inflation over a longer period; or
2. seeing the value of what you’ve put in go down by as much as 10, 20, 30%? - this is what can happen with stocks and shares. Historically the market recovers but you don’t know how long it will take (a day, a month, or a few years). If this scenario scares you or you think you would take the money out at a loss, then investing is probably not right for you at the moment.

I would go for stocks and shares and involve them. They can see how well things do and the investment fluctuating with the stock market. 5 years would be a good amount of time to weather any down turns. Investment usually does better than cash. With a small amount, I would probably look for a stock market tracker, or diverse "global" fund. It's not enough to diversify into multiple funds.

S&S ISA gets best longer term return but agree with others 5 years minimum. Do you want money for university and is there enough time for that?

Thank you. That’s a difficult question! I think option 1 is more off putting for me because there’s no recovery from that is there? At least with option 2 you can leave it and hope for the best.

Thanks for this. When you say about the tracker/diverse global fund is this something I’d choose once I’d selected the account on say Nutmeg? Or do I need to find a platform that offers this? Thanks!

As stupid as it sounds I’ve not really thought about what the money is for!! I just know we should be doing something. We are in Scotland so no fees to worry about (unless that changes) and I don’t think it’s long enough to get together a decent amount for living expenses.

Cross with myself for not doing it sooner but we weren’t in a position to when they were babies and I’ve told myself over the years it’s not worth it for the sake of £20 a month but it would have been. Oh well, hindsight is 20/20!

It depends on each platform how you open the account, but you will either give them cash then invest into things, or invest straight into the product. They should have information on their website to help you choose an appropriate investment within your risk appetite. I would expect any larger platform to offer suitable products.

I personally use Vanguard for JISA and chose the default diversified fund based on my risk appetite. Now I’ve done this for a couple of years I’ve increased my risk level from 60% to 80%, but I’ve got at least another 7 years to save.

I ‘think’ it has the lowest management fees and is easy to set up, but lacks the options of a more comprehensive provider like Hargreaves Lansdown. Some monthly charges have come in for lower balances but I think JISAs are still monthly fee free.

TBH, I’d take the plunge and start chucking in £50 pm. Whats the worst that can happen, in 6 months you’ve only invested £300 per child and can stop if you don’t like it.

That’s kind of what I’m trying to tell myself! Don’t overthink it.

We are saving in a junior S&S ISA and premium bonds for our kids. I think we will probably try and save a bit more into the ISA for the next year or so and then leave it to hopefully grow over the next number of years, and then revert back to adding to their premium bonds.

Morning, I have Nutmeg junior ISA's for my two & have had them since September 2021. I've slowly drip fed money from their savings account which was mainly birthday money over the years and as that dried up I could only afford £10 per child per month from my salary but some months the total pot has grown by upto £60. I'm a fan of them.

Nutmeg is really straightforward, no thinking as such involved. Had Nutmeg for years for my own S&S ISA & LISA. You just set the risk level by way of a questionnaire and deposit the amount as you like. At first it lost money but over time it's grown and the pots are £600+ positive.

I haven't used another provider so can't comment but if you are new to investing Nutmeg is a good starting point.

Why in your own name? I opened a junior S&S ISA and a Junior SIPP for my son at birth, in his name obviously. Otherwise you're not maxing out the tax benefits if in your own name.

Plus, what happens to their money if you died intestate or leaving to partner etc? Their money needs to be ringfenced in their name only.

I also have regular savings accounts in DS name, but long term, his investments are doing much better (up 50% since inception, but I self-select individual shares and funds, and invest for the long term). I'm classed as a 'sophisticated' investor, and find that Hargreaves suits me well.

Ds also has a few premium bonds, but I hate the idea of money sitting there not earning. He was lucky and won £50, which equated to a 20% boost, so that justifies my holding them for a few more years.

I think the logic is that if in their name they get control of it on their 18th bday and could just spend it on booze and women and waste the rest ( George Best). However, I’m with you and opened Junior ISAs in their own names. They know about it and understand the tax benefits and know that money is not for wasting and if it is then the bank of M&D will not look favourably on any future financing requests.

For the OP, for another option of provider I use Fidelity and invest in a global tracker fund - has v low fees as it’s just computer traded and is about as well diversified as you’re going to get.

i actually need to get some PBs for child2 as child 1 has some. I remember buying £150 the year she was born. They’ve won a total of £75. Don’t know if that’s good!

Yes I do need to decide if I want them in my name or theirs. These days 18 is just nothing, people aren’t really moving out at 18 as much or getting married at that age so it seems a very young age to be given money now but I’d obviously just hope they’d keep a hold of it and I could still be adding to it I suppose?

I was doing a bit more research last night and actually think I could manage Trading 212 on my own (maybe!). Any benefits to that over somewhere like Nutmeg?

Depends how many years you've held. That's a return of 50%, but you need to divide by how many years the bonds have been held to work out your annual rate.

Once they turn 18 they get control, but it's usually a letter from the provider. You could always speak to them, explain, and give them the option of them topping up with cash from you.

Personally, I'd want to know I had funds available to me. Certain choices weren't open to me as a young adult due to lack of funds; I strongly believe everyone should have access to a 'fuck off' fund; I'll be ensuring my son knows he has options.

are there any tax implications for say a 21 year old being given several thousand by a parent?

Not if you survive 7 years after making the gift. If you die before 7 years elapses then the gift forms part of your estate for inheritance tax purposes. However, there are other exemptions, like you have an annual allowance of gifts below £3k. Also, if the gift meant that your DC had significant savings then it would be a factor in them applying for benefits.

I'm not that familiar with Trading 212 but at a glance it seems that is more for people who want to invest in individual stocks rather than funds. Put simply, to invest in stocks (shares) you can either buy the individual company's shares ( you can set up an account and buy e.g. Apple shares or Tesco shares and trade them yourself) or you can buy a fund where you have a proportional ownership of a portfolio of shares that is either actively managed by a portfolio manager or computer traded against an Index- these are often called tracker funds, so a FTSE tracker would be a fund that holds stocks in proportion to those that make up the FTSE index.

The benefit of funds is that you don't have to actively manage them and stay on top of the company's performance and because they hold a large number of shares you get a natural diversification of your risk. If you buy a few individual shares then your risk is much greater because if one has a terrible year (e.g. Tesla) then you can lose a tonne of money v quickly. Unless you want to dedicate loads of time to this, I would not recommend individual stocks. I used to do some trading in a sector I was very familiar with and in the short term did fairly well, but honestly, it was more gambling than investing and it was a sort of hobby.- I traded very actively- lots of short term positions. I wouldn't have done it with my kids' investments.

Thank you so much everyone. This has been so so helpful. I can’t wait to get started!!

The main difference is who they're targeting. Nutmeg is a robo-advisor very much marketed at those who are perhaps new investors and offers ready made portfolios based on broad risk levels. Trading 212 is aimed at those who want more active DIY management.

I personally use Trading 212 as they have no platform or trading fees, unlike Nutmeg. You can buy individual stocks but you can also buy ETFs so it's possible to achieve a cheap, passive, globally-diversified portfolio this way. But if you feel you might be tempted to play around with individual stocks and want to avoid that, then don't choose T212.

Platform preference is largely personal and can depend on the feel of the UI and ease of use plus availability of advice etc. There will be videos on YouTube showing the various apps if that helps you decide.

As a side note though, you'll need £500 to open a S&S ISA with Nutmeg.