- Investing the full Junior ISA allowance since launch in 2011 could have net £208,065 for your child
- That compares to £96,901 if they’d stuck to cash – over £111,000 less than investing
- Three steps to start investing for your child
Laura Suter, director of personal finance at AJ Bell, comments:
“Putting money away for your children is a great way to set them up for life, but lots of parents default to cash – costing their kids’ future wealth. Saving money when your child is young means there is a long time until they will access the money, which is ideal for investing. However, still lots of parents stick to the safety of cash for their children, denting their long-term wealth
“If a parent had saved the full Junior ISA allowance every year for their child since they were launched in 2011, they’d have saved an impressive almost £90,000 during that time. If they’d kept that Junior ISA money in cash it would have grown to just shy of £97,000. However, if they’d invested that money instead in a global equity tracker, they’d have a pot worth £208,000 for their child. This highlights that sticking to cash has cost the child £111,000 – a huge difference in wealth. Cash feels safe, but over 18 years it’s often the riskiest choice of all.
“Parents have gradually moved into investing more for their children. In the 2012/13 tax year, 69% of the Junior ISA accounts subscribed to were cash, compared to just 31% of accounts being investment ones. But this has dropped to 56% of accounts being cash in the 2023/24 tax year, the latest data available, compared to 44% for investing.
“The total amount paid into investment Junior ISAs has also risen. Back in 2012/13 the vast majority of money paid into the accounts went to cash – with 75% of the money subscribed funnelling into cash versions of the accounts. Now in the latest figures this has shifted to 36% for cash, compared to 64% of the money going into investment Junior ISAs.
“Up to £9,000 can be paid into a Junior ISA each tax year – either by a parent, grandparents, other relatives or friends. The money can grow tax-free and is locked away until the child turns 18. Squirrelling away little and often can add up over time and get the child in your life off to a great start once they become an adult.”
Three steps to start investing before tax year end
“Lots of parents are put off investing by fear or lack of knowledge, but that shouldn’t get in the way of getting started. There is lots of help and support available for first-time investors and in just a few steps you can get started investing.”
Step 1: Pick an account
“The first step is to decide what account to use. When saving for kids you can use a Junior ISA, which means the money is ring-fenced for them and in their name. You can pay in up to £9,000 a year and no one can access the money until they reach 18 – at which point they are in control. Alternatively, you can save money for your child in your own Stocks and Shares ISA account. It means you can access the money whenever you want, but it will use up some of your £20,000 annual ISA allowance and the money isn’t neatly ringfenced.”
Step 2: Pick an investment route
“You’ll need to work out how hands-on you want to be with your investments. Some people love picking individual stocks or funds themselves, doing research into sectors to invest in and coming up with their own investment portfolio. Others would rather be more hands-off, and instead opt for a broad global tracker fund or a so-called ‘all in one’ fund, which spreads money across different asset classes, sectors and countries. There’s no right answer, it just depends on your appetite and spare time to dedicate to investing. Equally you don’t have to choose just one route – some people start with the hands-off approach and then add their own investments on top. But the main thing is to have a plan and get going.”
Step 3: Are you an automatic or ad-hoc payer?
“Some time-poor parents will like the idea of automating their investments, so that the same amount goes from their bank account into the investment account each month and automatically buys investments. Others will prefer to do it ad-hoc as they have money or when they’ve saved up. The benefit of setting up regular investing is that it happens behind-the-scenes and doesn’t require you to remember to log-in and do it. It also means you’re not trying to time the market, as the investment is bought automatically each month. But if you can only contribute to the account sporadically, it’s probably not the option for you.”
