Investing for Future Generations

A quick internet search on the costs of raising a child brings up plenty of results. In real life, however, how much it costs to bring up a child depends largely on your personal situation. How much is housing in your area? How much free childcare can you get from grandparents? Are the local schools good or do you need to look at private school fees? One fact is, however, absolutely clear – children are a challenge to the family finance. Parenting and Financial Planning While nothing can prepare anyone for the reality of their first baby, there is a lot can be done in advance to sort out practical matters relating to the newborn-to-be. Ideally couples should start putting away some savings as soon as they agree they are seriously interested in having a baby. Putting away a little at a time in advance of the pregnancy can go a long way to dealing with baby-related expenses later. Once the pregnancy is confirmed, baby preparations should also include financial preparations. Planning for Parental Leave It is essential for parents-to-be to know what their employer offers in terms of parental leave. Some employers will only provide the statutory minimum. Others may offer more generous terms. Future parents will also need to think about the “post-leave” stage. Will one parent stay at home or will both work? If the latter, who will look after the baby? If one parent gives up work, there will obviously be a loss of income. If both parents work, there may be childcare costs. Depending on circumstances these may be paid out of income or financed in another way. For example parents may use their savings or may have been investing for this time. Securing a Child is Long-Term Future It may not seem like it at the time, but sooner or later the sleepless nights, dirty nappies and teething do come to an end. Parenting, however, is a long-term job and children are long-term commitments. Even if local state schools are good, there is still university and other expenses like driving lessons and first cars. Depending on where you live and what your child wants to do with their life, having a car (and a licence and insurance) may make a world of difference to their chances of employment. Investing for a Child There are a number of ways to help finance your child is path to adult life. One obvious route is Junior ISAs. At current time you can invest up to £4080 per year. Other relatives and friends can also put money into the pot. Junior ISAs can be held in cash or invested in the stock market (or both). In either case the returns are tax free. Once your child turns 18, the money becomes theirs outright. Junior ISAs can be attractive but there are a couple of points about them parents need to understand. First of all, unlike their adult counterparts, the money in Junior ISAs is effectively locked away until the child is 18th birthday. There is absolutely zero flexibility in this. Therefore if you want to save in a way which allows withdrawals, you will need to look at other options. There are child savings accounts without the tax advantages but with much more flexibility. Another potential issue is that the whole sum is available to your child on their 18th birthday. If you save the full amount each year, that is £73,440 plus any returns. Your child could use it responsibly. If you have taught them good financial management maybe they will. But if they go out and blow it all on wine (wo)men and song, there is absolutely nothing you can do about it. If this is a concern for you, you may wish to look at creating a trust for your child. This might sacrifice some of the tax advantages of Junior ISAs but could give you much more control over how the money is eventually released and spent. The value of investments and any income from them can fall as well as rise.  You may not get back the amount originally invested. HM Revenue and Customs practice and the law relating to taxation are complex and subject to individual circumstances and changes which cannot be foreseen https://www.moneyadviceservice.org.uk/en/articles/junior-isas https://www.moneyadviceservice.org.uk/en/articles/childrens-savings-accounts https://www.moneyadviceservice.org.uk/en/articles/setting-up-a-trust