Family Finance: Savings, ISAs and Child Trust Funds

As parents, we all want the best for our children and would like to think that we can give them a good start in life by the time they reach adulthood, by putting money into some kind of savings or investment plan for them.

Considerations

There are several different ways of saving and investing for children and there are a number of factors you should consider before making any commitments.

Firstly, there is the timescale. Do you want to invest for the short-term or long-term? How about accessibility? You need to ensure there are no withdrawal penalty charges if you think that you or your child will want to gain access to the money at short notice. On this note, there may also be other charges associated with the plan so, even if you’re only planning to invest a modest sum, you need to shop around and compare financial plans for children, to ensure that you’re not going to be subject to excessive charges.

You might also need to look closely at the element of risk that’s involved. Higher risk plans may ultimately bring better financial rewards down the track but investments can be either no risk, low risk, medium or high risk and if you decide to adopt a high risk approach, then it is conceivable that you may find your investment is ultimately worth less than you originally invested.

Reasons for Investing

There may be numerous reasons why parents and indeed, grandparents and other relatives may want to invest in a child’s future. For example, many people now wish to have their children schooled privately and although this used to be the domain of the better off, parents from all kinds of socio-economic backgrounds now want their children to have the best possible start in their schooling. Therefore, if you’re not a particularly high earner, you may want to consider saving for private school fees. Still on education, going to university has placed even more of a burden upon parents, since the introduction of student loans and tuition fees which may require you to start saving for that many years before your child is at the age at which they might wish to go on to higher education. One way to save tax free for a longer term events when you have a newborn or very young child is through a child bond.

There are other things you may wish to save for. For example, we’re all well aware of the difficulties faced by first time buyers in the property market, in terms of young people being able to afford to get onto the housing ladder so money set aside for that purpose will often be of huge benefit to your children when they get older. You can use each family member's tax free allowance by taking out savings or investment plan, such as these explained by Scottish Friendly.From the grandparents’ standpoint, not only can you save for your grandchild’s future, but there’s the added benefit of reducing any potential inheritance tax you may otherwise have been liable for.

Different Types of Savings and Investments

National Savings Bonds are a popular choice and are less risky than most other forms of investments. That said, with less risk, they are also less likely to produce the best returns for your investment.

If your child was born after 1 September 2002, a Child Trust Fund might be preferable if you intend putting more money into your investment. It’s a more long-term strategy but can prove a very wise and useful investment which your child can gain access to when they reach the age of 18.

Children’s pension plans are also becoming increasingly popular and are discussed in more depth in another article. They can offer a very high return on your investment. However, your child cannot gain access to the pension until they reach the age of 50 and this age qualification is set to rise even higher in 2010. The returns on these plans can be phenomenal and can really benefit a person as they approach retirement, which can often be a time when some people struggle if they are only receiving the basic state pension.

Some parents might see the advantage of a pension plan as resulting in a far higher return and eliminates the potential of a child squandering their money when they are younger but others might see this as a possible cause of resentment by the child who would have to wait far longer to reap the benefits. Nevertheless, it may be something you want to consider.

There is plenty of information out there to advise you should investing for your children’s future be something you are considering. However, it is worth doing your research and speaking to the professionals to find out what might be the most appropriate way to go about it firstly.