How to Start Your Child’s Financial Journey
As parents, we all want to give our children the best life possible. But the ‘Bank of Mum and Dad’ won’t be open to them forever. Here are three simple ways to start your child’s financial journey and set them on the path to financial independence before they even know what pocket money is:
1) Teaching children the value of money early
Encourage your child to set financial goals in early life, from saving for a toy they want, to their first car or an amazing gap year trip. Starting with pocket money and piggy banks is fine, and you can progress on to more mature financial tools for children as they grow – more on those later.
Once you feel your child is old enough, you can start to explain some of the financial decisions you make for the household. Also, encourage them to make a personal budget for their own expenses and any income from pocket money, gifts, summer jobs etc.
Around the same time, you can begin to talk to them about some of the financial tools you might have already set up for them. Such as…
2) Opening a Junior Individual Savings Account (Junior ISA)
One of the best financial tools for young people in the UK is a Junior ISA. These come in the form of a Cash ISA (saving money) or a Stocks & Shares ISA (investing money).
You can deposit up to £9000 a year into a Junior ISA on behalf of your child. This allows you to save or invest money for them tax-free until they are 18 years old.
There is no lower age limit on opening a Junior ISA for your child, and when they turn 18 a Junior ISA simply converts into an adult ISA. They will then have access to the funds should they need them, and they can put up to £20,000 per year into the ISA as tax-free savings or investments.
3) Setting up a pension for your child
The long road to retirement can be made a lot shorter by starting a pension for your child. There is no lower age limit, however, the allowance for tax-relief on contributions is set much lower than for your own pension, due to the child not having taxable income.
Currently, you can pay £2,880 into your child’s pension. This will then benefit from an automatic ‘top up’ of 20% tax relief from the government, bringing the total up to £3,600 per year.
Starting a pension for your child can have massive benefits later in life through the power of compounding.
It really is never too early to start thinking about retirement! Talk to us about setting up a pension for your child today.