Finance for Children
Clothes, shoes, not to mention large telephone bills – no parent needs reminding that children are an increasing cost (we’re not saying they’re not worth it!). Add to this the parental help needed to purchase a first home and the ever increasing costs of university (tuition) fees - they all increasingly fall on parents. Throw in a wedding (or two) and your plans for retirement may be pushed further out to sea, with your dreams of a cruise soon on a distant horizon.
Can you remember “cut out and keep” guides? They seemed all the rage when I was first working (which for the record was the ‘80s). Today, I shall endeavour, if not in exactly that format (no scissors required, no dotted line to follow) to highlight what I see as the stages that any Mum, Aunt or Grandma would wish to see their child, niece, nephew or grandchild through, as they move from school to work:
- Firstly, let us all concentrate on teaching children the value of money. A good place to start is with pocket money, and my “Four Pots” is available free to anyone who would like to see how it works – and it really does! Start them at age three.
- Next, don’t forget that the main thing children value is not your money, your cheque book or your credit card, but your time. How much does that cost? They also like promises, so when we say “I promise to read to you tonight” it is rarely if ever forgotten – and it means a lot.
- OK, I can hear the complaints – “all mine want me for is my money” – see 1. above, and educate them out of it, as early as possible.
- Practically of course, there does come a time when money really IS needed – let’s call it University! In future, we know fees are increasing, and that our children are likely to expect our never-actually-uttered “promise” to be fulfilled – they can have the best education available to them. A recent study suggests that a typical three year degree, costs around £55,000, once fees and living costs are included. How does an 18 year old raise that sort of money? It’s likely to be Bank of Mum and Dad.
- A plan made early enough can mitigate these large costs – whether it be for school or University, an Education Fees Plan can make those decisions in the future much easier.
- When work becomes a reality, whether at 16, straight from school, or much later after further education, try to find time to take an interest in the financial aspects of the new, exciting adventure that your child is embarking upon – after all, you are the one with the hard-earned experience!
The JISA must be first on the shopping list to help our children financially on entering adulthood. With university fees at an all-time high and mortgage deposits often beyond the reach of first-time buyers, the Junior ISA (JISA), which was launched in November 2011, offers an efficient savings vehicle with many of the same features as adult ISAs. In addition, since April 2015 it has been possible to transfer existing child trusts funds (CFTs) over to a JISA. Investment limits of £4,060 mean that, in a similar way to the adult ISA, using the allowance each year in the long term can generate a sizeable pot.
As with any investment, JISAs may not be suitable in all circumstances, and there are pros and cons. It can be a long-term, tax-efficient savings route for a child; however, there is no flexibility on early access. At 18 the account holder then has complete access to the proceeds. This may be a cause for concern as the young adult will have full access to the money. With many young adults having debts in their 20s, it reinforces the fact that there is a responsibility to educate our children about money and financial planning.
Planning is the key and there are a range of other investments which parents and/or grandchildren are often well advised to consider when planning for a child’s future:
- Investment Trusts
- Unit Trusts/OEICs
- Child Savings Bonds
- Pensions – yes, even before they are earning your child/grandchild may have a pension, with tax relief
- Child Trust Funds (CTFs)
Equally, it may well be that all you need is to protect the source of the funds that pay for school fees and investigate family protection options.Mattioli Woods
At Mattioli Woods, we have one best-selling product - peace of mind – and we are seeing more and more clients planning for their children’s futures. “Disaster recovery plans” are being built to ensure that school fees (and more) can be met in the event of the untimely demise, or serious illness, of a parent. For others, tailored solutions mean consideration can be given as to how best to help children, grandchildren etc. in financial terms, regardless of their future needs.By Simon Gibson, Director