How can I invest for my family’s future?

At a glance

  • Saving a nest egg can give your children a great start in life – and it can help the financial wellbeing of your whole family.
  • The longer you contribute for, the more your children may benefit, and there are lots of ways to save.
  • A financial adviser can help you choose the smartest ways to save for your children or grandchildren.

They’re our greatest pleasure, and our top priority, but bringing up children is a costly business. Steep price rises this year have seen the cost of raising a child from birth to 18 rise 10% to £223,256.1

With the general costs a child brings, as well as the increased cost of living, many parents feel squeezed to make ends meet, let alone think about funding future costs like a car, or a house deposit.

But building a nest egg for your kids doesn’t need to break the piggy bank. And it could make a huge difference to their future.

Giving your children a financial head start

We want to do the right thing by our families, especially our children. Recent research by St. James’s Place revealed that more than two-thirds (69%) of clients expect to provide some form of financial support for a family member at some point2 – over and above day-to-day ‘running costs’. Until they’re established in their own careers, children often turn to parents to help them afford big ticket items, like university, gap year travel, and weddings or civil partnership ceremonies.

Parents, grandparents and other family members are often keen to help out too.

If you don’t want those sudden big expenses to impact your own standard of living down the line, the best advice is, start saving little, often, and early.

Allocating money into different pots can really help create discipline and help you plan for the future.

It also sends a positive message to your children about getting into good money habits early in life.

Children who see the advantages of saving a little over a long period will start life more financially literate – and more secure.

What’s the best way to save for my child’s future?&

Our two top saving options if you want to invest for your children’s future are Junior ISAs and children’s pensions.

With a Junior ISA funds can be saved annually and can be accessed when the child attains age 18. This means that money saved will have years to benefit from compound interest. If you choose a Stocks and Shares Junior ISA as your long-term investment, it will be better placed to ride out any bumps in the road, such as rises and falls in the stock market, the longer it’s invested. You may want to talk over your options with a financial adviser, so you can see how the investment fits into your own long-term financial future too.

With children’s pensions, they can’t access the money until they’re much older.

Why open a Junior ISA?

The tax-friendly Junior Individual Savings Account (JISA) is a popular option for families. JISAs are a flexible and simple, way to save, making them a good entry point for young savers. And any growth is tax-free.

Anyone can pay into a JISA – parents, grandparents, godparents, friends or other family members – but only parents and legal guardians can set one up. Payments into the JISA may be covered by the annual £3,000 tax-free gifting allowance, or the exemption for regular payments if made out of surplus income.

Like all ISAs, there is no Capital Gains Tax or Income Tax on any growth.

There are two types of JISA: a Junior Cash ISA and Junior Stocks and Shares ISA. You can pay up to £9,000 in the 2024/25 tax year into a JISA.

Money held in a JISA is locked in until the child reaches 18, after which they could convert it into an adult ISA and continue to enjoy the same tax advantages.

Why save into a children’s pension fund

Children can have a pension as soon as they are born. Setting one up can bring significant tax advantages. You can put up to £2,880 a year into their pension, and the 20% pension tax relief bumps this up to £3,600.

Just like JISAs, only a parent or legal guardian can set up a child pension, but anyone can contribute. Saving into a child pension can also help reduce your own Inheritance Tax (IHT) liability by bringing down the size of your estate. Payments from grandparents, for example, may be covered by the annual £3,000 tax-free gifting allowance, or the exemption for regular payments if made out of surplus income.

Starting a pension for a child, might sound like an odd thing to do, but again, starting early can make a big difference. Even investing small amounts means your child could accumulate a substantial pension pot when they do stop working.

As a rule, you should only contribute what you feel comfortable with each month. After all, you don’t want to compromise your own lifestyle in later life either.</p

Do children pay income tax on their savings?

Technically, yes. Children are liable to pay tax on savings, as they have the same income tax allowance as adults. It’s uncommon, though, as children generally don’t earn money, and their savings don’t tend to earn enough interest to exceed any tax thresholds.

For the record, children are entitled to a tax-free personal allowance of £12,570 in the 2024/25 tax year – the same as adults. If this income is from savings interest, there are extra tax-free allowances in addition to the personal allowance, allowing a child to potentially earn up to £18,570 tax-free in the 2024/25 tax year. This could be increased if you include the dividend allowance which is currently £500.

Family-friendly financial advice

Passing your wealth on doesn’t have to happen after you’re no longer around. We can help you decide on the smartest ways to save for your children. If you’d like to talk to one of us about looking at your finances as a family and for future generations do get in touch today.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

An investment placed into funds (equities) would not have the security of capital associated with a deposit account with a bank or building society.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note that St. James’s Place does not offer Cash ISAs.

Sources

1Moneyfarm, October 2023
2Intergenerational Wealth Transfer Survey, SJP and The Wisdom Council, 2023, survey size 887.

SJP Approved 12/04/2024feedback