For many families, it now seems old fashioned to hand over some shiny coins to your child each week to be deposited into a piggy bank. These days many parents have turned to apps to pay their children pocket money and keep track of where they are spending it.
In the UK the most popular ones are GoHenry, Osper and RoosterMoney, each of which will charge you for the service. The apps allow you to transfer the pocket money to your children electronically, and they can then spend the money by using a debit card.
AJ Bell have written an excellent article on the subject. Here is the link.
By the time younger children get to adulthood, we may well be in a cashless society. The sooner they get confident in managing their money with the aid of an App the better.
For longer-term savings, I am a great believer in Junior Stocks and Share ISA accounts – not Cash ISAs unless your child is close to 18.
With interest rates remaining low the traditional way of opening a Building Society account to save for a child is unlikely to produce anything like the returns available from an ISA invested in funds linked to the stock market.
Given the likely timescales of most Junior ISAs the natural volatility of stock-market investments is not something to be concerned about and, if you are contributing monthly, can be very beneficial. I favour a small range of Index Tracker funds to keep costs low and provide a good level of diversification.
A Junior ISA can be set up by the person with parental responsibility for a child under 18. However, anyone can pay into the account – parents, grandparents, godparents, aunts, uncles etc – up to £9,000 in 2020/2021. Most ISA accounts can be set up with a minimum of £100 or £25 per month.
Just be aware that a child can only have one Cash ISA and one Stocks and Shares ISA, so if the parent wants to change ISA manager the whole of the existing ISA needs to be transferred. Child Trust funds can also be transferred to an ISA. All of the income and growth is entirely tax-free unlike other investments funded by the parent where, subject to a £100 per annum de minimis, all income is taxed as if it was the parents’ income.
Grandparents often choose to fund a Junior ISAs for their grandchildren by way of their £3,000 annual IHT free gift allowance. Beyond that, regular payments from surplus income are also exempt from IHT.
As my regular readers will know, I am not a regulated financial adviser and I can only provide general guidance as distinct from personal advice. This is, however, one of those situations where one of the user-friendly, low cost, online services could provide all you with everything you need without going to an adviser. Have a look at https://www.youinvest.co.uk/investing-for-ldren/junior-isa or https://www.hl.co.uk/investment-services/junior-isa.
If you still need some help, give me, Richard, a ring on 07770 575122 and I can help you decide whether you need to talk to an adviser or whether my guidance service will do the job, alternatively book a 15-minute zoom call with me here
Don’t let your kids miss out. The rise of Junior ISAs shows no sign of abating and its position as a key part of wealth planning for different generations looks assured.
One word of warning. Some parents worry that their child will just blow the whole fund on their 18th birthday. That rarely happens, but if you were a wild child and see history repeating itself there are other ways of saving which will not be as tax-effective but will leave you in control. DO NOT use a Junior ISA if you are saving large amounts to assist with university costs or house purchase. Just phone or text me and I can let you have more information
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