We all want the best for our children, but providing for kids is expensive and not likely to get cheaper any time soon. For starters the Government has threatened to make additional slashes on child benefit, which could cause more than four million families currently receiving the benefit to lose more than £1,000 a year. Then there are the expenses for your child’s major milestones: learning to drive and acquiring that first car; going to university; getting married; and buying a first house. Parents expecting to cover those expenses, according to recent research from money.co.uk, will need an estimated £259,000. Yet the research indicates that 41% of parents aren’t saving for their children’s future on a regular basis. Amongst those who are doing so, the average monthly savings is only about £34.
Sadly, 28% of parents surveyed said that saving for their children simply was not an option; they looked upon it as a luxury they could not afford. At the same time 91 percent of mums who didn’t save for their children said they really wished they could. (By comparison, just two in three dads said the same.) What seems clear from the research is that many parents would really like to save £1,660 a year for each child if they were able to afford it. But the national average is a mere £410 a year.
However the problem isn’t unsolvable, especially if you start early and save often.
What can you do for your child?
A parent wishing to save for a child’s future has several options. Here are some to consider.
1. Children’s current accounts. This is a popular option as the majority of banks and building societies offer specialist children’s accounts. These often pay much higher interest rates than current accounts for adults. This type of account can give your child some control over his or her money and can be a great way to teach children about the importance of responsible money handling. If your child has no real need to access his or her money, placing it in a fixed bond is an option with better rates. However, make sure that you first exhaust the child’s ISA (Individual Savings Account) allowance if possible. Which brings us to…
2. Junior ISAs. This is like an adult ISA, but tailored for kids. As of 2015 the ISA allowance is £4,080. Family and friends can contribute on behalf of the child and all the income and growth is tax-free. Although the money belongs entirely to the child, she or he cannot access it until the age of 18 (and can then spend it any way he or she pleases). This type of ISA often pays more than the adult equivalent and can therefore be a prudent investment. If you have a child approaching young adulthood you might consider one of the new Help to Buy ISAs that will become available in autumn 2015. These ISAs are specifically designed to assist young people in the purchase of their first property. If they can manage to save £12,000 over five years the Government will add £3,000.
3. Judicious gifting. If you do it right, gifting can help your children build up significant savings and at the same time cut your inheritance tax. Currently you can give gifts of up to £3,000 per year to anyone you choose and the money given will not count as part of your estate. This can mean a saving of £1,200 on the amount that may been payable at your death. For married couples the savings is double and you can even utilise any unused allowance from the previous year. As well, each parent can give an inheritance tax-free wedding gift worth up to £5,000.
4. Friendly society tax-exempt plans. These children’s savings plan are only available through friendly societies, which are mutual-benefit organisations owned by their members to work for the advantage of those members. There are numerous societies from which to choose. Generally you will have a choice of paying into the plan for a period ranging from ten to 25 years; money is invested in a share-based investment fund for the length of term that you choose. Currently the maximum amount you can pay is £270 a year, or if you pay in £25 each month, £300 pounds a year. Your child must be at least 16 on the maturity date and you must have paid into the plan for a minimum of ten years.
Also make sure you are taking full advantage of all child-related benefits for which you may be eligible, particularly if you are a single parent or on a low income. And remember that as laws change the above information may also change, so always consult with a qualified financial adviser before making any important money decisions.
The task of saving for your children’s future – or even finding funds to cover present expenses – may seem daunting. But every little bit helps, and if you keep at it, you might be surprised by how much you can accumulate in the long run.