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Start saving early for one's children

This article is part of
Guide to Family Financial Planning

Saving through premium bonds keeps the money in the parents’ names and grandparents are also permitted to buy them for their grandchildren.

Grandparents might be well placed to step in to fund the children’s education, as they could have significant disposable income to spare.

The FCA’s May 2019 research note Accumulation of wealth in Britain - what the distribution of wealth tells us about preparedness for retirement revealed that within the 60-69-year old group, the median total wealth is £280,000; the top 25 per cent of this group has total wealth of around £630,000; and the top 10 per cent has more than £1.25m.

Junior Isas

Junior Isas provide another way of saving for supporting children financially, which can continue well beyond their school days.

Mr. Hollands suggests parents might consider a Junior Isa for this purpose, as he explains: “Investing in a Junior Isa for your child or grandchild is a great way to build a financial ‘war chest’. 

"The proceeds could be used for all manner of purposes, such as funding the costs of a degree course, or towards a deposit on their first home.

“Alternatively, the child could remain invested beyond the age of 18, perhaps withdrawing sufficient funds each year to reinvest in a Lifetime Isa, where they will receive a 25 per cent government bonus. Lifetime Isas are designed to be specifically used towards either the first-time purchase of a property or retirement.”  

It could be particularly useful for parents to note that while they can open a Junior Isa, which has an annual deposit limit of £4368 in this tax year and manage the account on their behalf, the funds are the child’s. The Isa comes under the child’s control when they reach their sixteenth birthday, but they then cannot gain access to the funds for another two years.

However, this introduces a potential dilemma for parents, as Mr. Churchouse observes: “When the child turns 18, it becomes a standard Isa product and the child has access to the money.” This could therefore mean that the money might not be used as parents would wish.

Finally, Mums and Dads who might like to take a very long-term approach, could also consider a child pension, to kick-start their offspring’s retirement savings.

Parents can contribute up to £2,880 each tax year and if they put away the full amount, the government adds £720, bringing the total amount contributed to £3600. And while the pension transfers to the child at age 18, they can not access the money until they are well beyond their teenage years, avoiding previous parental dilemmas.