News/Events

Start Saving now to ensure your child's secure future [31st December 07]

The cost of raising a child from birth to age 18 is something in the region of £180,000, without the cost of private education. Source: F&C. And parenting costs rarely end at 18 –with University fees and mortgage deposits, more parents are looking to save for their children’s future. 

An increasing number of people are also choosing to gift money for Birthdays and Christmas rather than overload children with toys. This can be substantial amounts invested by generous grandparents or smaller cash gifts from other relatives that parents choose to invest.

Most will be aware that the Government is encouraging child savings now with any child born in the UK after 1 September 2002 will have received a Child Trust Funds voucher (CTF) of £250, at the age of 7, the child receives a second £250 to add to their fund. Parents, family and friends can add a further £1,200 a year which also grows tax-free until the child reaches 18. At age 18, your child can cash in the money to spend as they wish. The government open accounts for a child who’s Parents fail to invest the voucher but they will miss out on a whole year’s growth on their money so don’t delay!

The Government is also trying to make sure that our adults of tomorrow have more financial understanding. From September 2008 the Government is introducing a new subject for children aged 14 upwards which will teach essential financial life skills to provide financial awareness for when they leave school, but financial awareness starts much earlier.

For instance weekly pocket money is children’s first opportunity to learn about managing their own money, a valuable lesson; it’s worth encouraging savings to achieve their short term wishes and a nest egg for future goals. They can manage their own bank or building society account from age 7, complete a R85 form, interest is automatically paid after 20% savings tax is deducted unless you use this form. Monthly allowances can teach teenagers budgeting skills.

I have previously talked about setting financial goals and some for your child will be short term which will require a low-risk way to grow the fund but other goals will be future goals 10-20 years ahead and these could consider adopting a higher risk approach to keep up with and possibly exceed inflation. 

Perhaps the best advantage for saving for your child’s future is the length of time that your investment has to grow so start early; birth to aged 18 is a good long period for any investment.

Consider this example. If you were to put away £100 per month over 18 years you will have saved £21,600, this is without including any investment growth, if it achieves growth of 6% per year, the total saved would be £38,281. However if you left it until your child reaches their 5^th Birthday you would have only saved £15,600, £23,388 including growth. In this case you child will miss out on nearly £15,000 and it will only save you £6,000. - Source: F&C

There is a range of short and long term child savings and investments options available and I will attempt to cover these in my article next week. However my articles do not constitute advice, if you want to save for you child’s future - contact an IFA to discuss the options today. The sooner you start – the more you will build.

This article was written by Langtons - Published in the Western Morning News, This is Money, 31st December 2007