How should I start investing for my kids? What products make sense?
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I would like to set aside £100-200 per month for each of my children.
financemum
1 year ago
Expert Financial Adviser Answer
Paul Ross DipPFS CII(MP&ER)
answered 1 year ago
I usually advise my clients to consider a unit trust and designate it for your child /children. Even though a unit trust is associated with risk as there is an element of stocks and shares, over the long term, they do generally outperform better than cash accounts.
The alternative's are savings accounts with your local building society or a National Savings account. At present, the interest rates are dire, and probably will be for awhile, but I would seek advice on this area through an adviser so that you can consider the best option based on the amount you want to save, the term and your attitude to risk.
Feel free to ask me anymore questions
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The alternative's are savings accounts with your local building society or a National Savings account. At present, the interest rates are dire, and probably will be for awhile, but I would seek advice on this area through an adviser so that you can consider the best option based on the amount you want to save, the term and your attitude to risk.
Feel free to ask me anymore questions
Expert Financial Adviser Answer
Dr David Carter FPFS
answered 1 year ago
Although we normally try to protect children from risk, be careful not to apply that protection too strongly to their long-term savings. As Paul says, interest rates on deposit-like accounts are dire and, even if they improve, a stocks and shares-based investment, whilst 'riskier', has the best chance of giving a decent return - and I echo Paul's sentiment that advice really is essential, here.
Three further points.
First, permit yourself to have control of the funds beyond the child's 18th birthday, even if this may mean investing in your own name in, for example, an ISA. It just may be the case that, if the child is entitled to the funds at, say, 18, they may be going through a difficult time and will need some parental protection - you might consider it wise not to provide them with additional funds.
Second, remember that children, however young they are, can now hold pension plans. Not only would this be tax-efficient for you and them, but it would protect the investment, would create a pension 'habit', and should grow enormously by the time they take the benefits. Do think about using some of the savings in this manner (but not all!)
Finally, if you start a long-term savings plan for them, but then meet a premature death yourself, then your excellent sentiments will remain unmet. So also consider having - even using a little of what would have been saved - a life insurance policy written for the duration of your intended gift.
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Three further points.
First, permit yourself to have control of the funds beyond the child's 18th birthday, even if this may mean investing in your own name in, for example, an ISA. It just may be the case that, if the child is entitled to the funds at, say, 18, they may be going through a difficult time and will need some parental protection - you might consider it wise not to provide them with additional funds.
Second, remember that children, however young they are, can now hold pension plans. Not only would this be tax-efficient for you and them, but it would protect the investment, would create a pension 'habit', and should grow enormously by the time they take the benefits. Do think about using some of the savings in this manner (but not all!)
Finally, if you start a long-term savings plan for them, but then meet a premature death yourself, then your excellent sentiments will remain unmet. So also consider having - even using a little of what would have been saved - a life insurance policy written for the duration of your intended gift.
Expert Financial Adviser Answer
Darren Smith
answered 1 year ago
I completely concur with David's reply.
protection (life cover in trust) is ideal and need only cost a few pounds from a generous budget that you have in mind.
equally, your kids will thank you in the future to have invested a little in a pension for them, even of you do just the minimum each child of £20 x2.
i also agree with using your isa allowance to control the investment for your kids that is designed to be used (before the kids retire) as you retain full control over the money and if the kids go a bit wild in their late teens you can still decide whether or not to release the money (mad parties or university fund?) as much as we can all hope our kids will be sensible - you never can tell!
the downside of using the unit trust (designated for the kids) is that when a parent gifts money to his/her own child, if that generates more than £100 gross pa in income (share dividends or savings interest) then the whole sum is taxed as if its the parent's money.
almost every investment over a 10 year term will outperform cash and no matter what level of risk you are willing to accept now - you are not locking yourself to that for the whole term - that's the beauty of ISAs (and other "modern" investments).
its not like the old days when the only option was an endowment with often only 1 fund choice.
even after all this, regardless of which investment route you eventually take, you will have taught your kids the lessons of planning ahead and saving a little money for a long time and how that can be more beneficial than becoming buried in debt.
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protection (life cover in trust) is ideal and need only cost a few pounds from a generous budget that you have in mind.
equally, your kids will thank you in the future to have invested a little in a pension for them, even of you do just the minimum each child of £20 x2.
i also agree with using your isa allowance to control the investment for your kids that is designed to be used (before the kids retire) as you retain full control over the money and if the kids go a bit wild in their late teens you can still decide whether or not to release the money (mad parties or university fund?) as much as we can all hope our kids will be sensible - you never can tell!
the downside of using the unit trust (designated for the kids) is that when a parent gifts money to his/her own child, if that generates more than £100 gross pa in income (share dividends or savings interest) then the whole sum is taxed as if its the parent's money.
almost every investment over a 10 year term will outperform cash and no matter what level of risk you are willing to accept now - you are not locking yourself to that for the whole term - that's the beauty of ISAs (and other "modern" investments).
its not like the old days when the only option was an endowment with often only 1 fund choice.
even after all this, regardless of which investment route you eventually take, you will have taught your kids the lessons of planning ahead and saving a little money for a long time and how that can be more beneficial than becoming buried in debt.
