Children are the most precious thing most of us have in our lives, whether we’re parents, grandparents, aunties, uncles or other forms of caregivers. 

And, because of this, we naturally want the very best for them. 

There is arguably no better way of ensuring that, than giving them a positive financial foundation, and there are a variety of ways in which everyone can do that, whatever their personal means – from helping them pay for driving lessons, fund the deposit on their first home, start investing for their future or, simply, making sure they have the right information at their fingertips to make the right choices. 

One of our directors and Chartered Financial Planners, Wayne Audsley, talks through a few simple steps that can help safeguard the financial futures of your future generations. 

Set your financial goals early  

If you understand what you’re saving for, it’s more likely you’ll achieve it. Knowing whqt you want to achieve will also help you choose the right financial vehicles to help you get there. 

Do you want it to be enough to help pay for their driving lessons and first car; pay towards their university fees or living expenses; help them rake together a deposit for their first home or pay for their wedding, or simply target a certain amount which you’ll then hand over to spend as they wish and help them on their way? 

Whatever you decide, the other golden rule to bear is that the earlier you start investing, the easier it will be to accumulate money, because you’re allowing it the maximum amount of time to grow. 

Wayne explained: “If you start saving for a child when they’re born or soon after, you might be pleasantly surprised how even a relatively small amount could build into quite an impressive pot by the time they need it, and the earlier you start, the better. 

However, he added that if you’ve left it a few years, starting to save something for those offspring at any age is what matters. 

Tailor your savings accordingly 

It’s easy to plump for populist, well-advertised products targeted at families, but these may not actually fulfil your personal goals, and, with the right advice, you can often achieve better potential growth by getting professional and experienced help to look beyond the hype. 

Not only that, but with interest rates stuck at historic lows, cash savings in most cases will do next to nothing to grow your youngster’s pot, and this looks set to remain the case for the foreseeable future. 

“Cash savings accounts and Junior ISAs are popular choices with lots of people,” added Wayne. 

“And with good reason, given that, around a decade ago, the Government was offering initial incentives for parents to take out Junior ISAs.  

“There is still a place for cash accounts, in terms of helping to teach children about the value of money and the importance of saving, and there are lots of attractive options out there, from that point of view. From whizzy pocket money and personal financial management apps, to traditional building society versions where they receive a paper passbook to watch their money grow.” 

However, to achieve real growth, it is often worthwhile thinking out of the box. 

“Junior ISAs and friendly society policies, serve a purpose for people wanting to put something away regularly, who are comforted by the familiarity of these kinds of popular vehicles and lack the confidence to invest in the wider stock market,” continued Wayne. 

“However, in many cases, by choosing such options they will be limiting their access to the wider array of investments that could really help to transform their child’s nest egg into something significant and useful. 

“There is nothing wrong with someone setting up a trust fund for their child at all, but it’s always worth reviewing it and asking themselves ‘am they really getting the most out of what I’m putting in?’  

“What many people aren’t aware of is that you can actually transfer a child trust fund into a Junior stocks and shares ISA, or individual savings account, which opens up a huge investment choice and, in turn, better growth prospects.  

“We can help select stocks and shares ISAs which fit someone’s personal attitude to risk but equally have the potential to grow – and because these are longer-term investments, putting cash away regularly over, say, 18 or 21 years, any stock market ups and downs that occur during that time are less of a problem. 

“In fact, they can actually play in their favour by enabling them to buy funds cheaper in any months when things are down, giving greater potential for growth later on. 

“Overall, investing in the stock market consistently outperforms cash savings over long periods of time,” 

“The key, though, as with any other financial decisions you make, is to sense check and then regularly review your investments with a financial advisor, to make sure you make the right choices to suit your aspirations.” 

Harnessing the power of pensions 

It might sound strange but another way of setting your children in good financial stead is to begin saving for their pension. 

We understand it’s unlikely you’re going to be thinking about your newborn’s pension fund straightaway, and not everyone has the disposable income to put away cash towards this more distant goal, but there are many benefits to starting their fund early which not many people are aware of. 

“And since the so-called pension freedoms were introduced in 2015, pensions have become much more a way of ensuring you can live your life the way you want, than all about finishing work.  

“Although the minimum age for accessing a private pension – currently 55 – is likely to have risen exponentially by the time the newest generation are ready to do so, you might decide that looking into the future with the peace of mind that they are well-prepared for when the time comes, is worth its weight in gold. 

You can put £3,600 a year into a plan for your child and only pay £2,880 because of generous tax relief on pension payments. So for example, if you did this every year until they became 18 and then left it alone until they reach 64, they would have a £1 million pension pot when they retire (assuming an average 5% yearly growth rate) – just consider that legacy for a minute!.  

“You don’t have to invest the full £3600 in each year, of course, even just £10 or £20 per month could set them off to a great start,” added Wayne. 

“And the beauty of pensions is that they can also help with inheritance tax (IHT) planning. Saving regularly into one for a child can help gift them some of their legacy now, without incurring inheritance tax issues if it’s out of annual income, which, if you’re able, could be another reason to consider that as part of your child’s pot.” 

Review your financial plans regularly  

Don’t allow your financial plan to go stale once you’ve created it. 

As well as your goals changing and evolving, we know that life can throw us all curve-balls every once in a while, like relationship changes, ill health or even coming into a bit of money. That’s why it’s important to be proactive and keep your financial plans up-to-date, and we recommend an annual financial healthcheck for all our clients, just to make sure that everything they have is how it should be. 

“One thing lots of people forget, is making sure all of their paperwork is up-to-date, should the unforeseen happen, and, sadly, falling into this trap can have a seriously adverse effect on those they love, including any children,” said Wayne. 

“As many of us have been working from home during COVID-19, surrounded by our family and loved ones, it is likely we have all revaluated how well we are prepared for our futures, and Wayne had this advice: “Although it’s not always an easy topic to broach, writing a Will is going to help in ensuring your family’s financial stability, and, again, making sure it is kept up to date with your wishes and circumstances. 

“Also, making sure the beneficiaries stated on your pension documentation are up-to-date, so that any lump sum or ongoing pension holding goes to the people you want it to, and saves them an administrative headache sorting it all out if you’re no longer around.” 

Pass on your knowledge  

We understand that the financial services are not always easy to navigate. That’s why teaching your kids the basics will widely benefit them in the future. Even if you don’t have much money to put away for the ones in your life, committing to educating them about finance is possibly the most valuable gift you can give them, and will almost certainly make them wealthier in the future.  

“There are many ways of doing this, but I would suggest at least once a month, sitting down with them and going through a different topic each time,” said Wayne. 

“Sadly financial education isn’t widely taught in schools, but educating your children like this, you are playing a key role in influencing their attitudes and feelings towards money. 

“Find good sources of information and begin teaching them the basics of saving and spending. It can be as simple or as in-depth as you like, obviously depending on their age and capabilities, and this will lead them to make better financial decisions as they grow up. 

“And it’s likely to have a positive knock-on effect on you, too, because researching things to tell them will force you to research things and find out new ideas for your own finances.” 

If the content of this blog has got you thinking and you’d like to arrange a free, no-obligation chat to help you make suitable provisions for your child, email us or give us a call on (01482) 860700. 

This blog is intended to provide readers with viewpoints, opinions and inspiration regarding options they might want to consider. It is not intended to be taken as advice and we strongly recommend seeking professional financial advice before taking any action.