Investing can often seem a little daunting, but earlier this year, I started investing for the first time in a stocks and shares ISA. So far, I have found it an excellent way to see a return on my money that I would not otherwise receive from a savings account with a bank.
But did you know, that if you have a child, you can also open a junior ISA account for them? Opening a junior ISA allows you to invest in your child’s future over a long period of time, tax-free. The Junior ISA allowance is £4,368 in the 2019-20 tax year.
I don’t have a child myself, but fortunately Jim from Money Blog Scotland has kindly written this guest post about when to start investing for a child. Jim has fantastic knowledge on everything financial- and even worked in financial services for four years.
Read on to find out more, and even use his dedicated Junior ISA Calculator to help you see how charges could effect your child’s Junior ISA.
Over to you Jim…
A little can go a long way if you start sooner
It can be tough starting up a savings plan for a kid when they’re newly born. But even starting from £10 per month could set you on the right track towards building a nest egg for your child.
I’ve been there. The arrival of a new baby brings with it a whole new world. It’s the best thing ever, but you’re also busier than you’ve ever been and wondering what you did with all that spare time you had before.
Getting Into the Habit
And sometimes the last thing that a parent wants to do is start researching investment funds and deciphering financial jargon when they’re knee-deep in dirty nappies.
However, simply getting into the habit of putting away even £10 per month for a child can reap rewards when the child turns 18.
Compound Returns
The power of compound returns means your monthly premiums, whatever they are will do the hard work in the background.
A stocks and shares Junior ISA plan could allow you to invest money in the stock market with the aim of growing your child’s fund over the long term.
Try calculating potential outcomes using this JISA calculator.
Take a look at these examples. The numbers below are for illustration only and are not guaranteed figures for any investment plan. Provider charges have not been factored in for the purposes of this illustration and bear in mind that stock market investments can go up as well as down and you could get back less than you pay in.
£10 Per Month
Think you could manage to put away £10 per month? What’s that? The price of a couple of drinks in your local pub? Investing just £10 per month for a child starting when they are born could build up to a sum of £3,507 when they turn 18 (based on 5% growth). But delay starting a plan until the child is 5 years old and the same growth rate could return only £2,200.
Start plan at a child’s birth – invest for 18 years. £10 Per month
| 2% growth over 18 years | £2,602 |
| 5% growth over 18 years | £3,507 |
| 8% growth over 18 years | £4,833 |
Start plan when child is 5 – invest for 13 years. £10 Per month
| 2% growth over 13 years | £1,783 |
| 5% growth over 13 years | £2,200 |
| 8% growth over 13 years | £2,747 |
Start plan when child is 10 – invest for 8 years. £10 Per month
| 2% growth over 8 years | £1,042 |
| 5% growth over 8 years | £1,182 |
| 8% growth over 8 years | £1,348 |
So you can see how the effects of delaying investing for your child can impact on their final sum when they turn 18.
£50 Per Month
But what if you were to invest £50 per month?
Of course the more you invest the more you get back, but your £50 per month (a night out in the pub with mates) could really go to work on the stock market.
Start plan at a child’s birth – invest for 18 years. £50 Per month
| 2% growth over 18 years | £13,009 |
| 5% growth over 18 years | £17,533 |
| 8% growth over 18 years | £24,164 |
Start plan when the child is 5 – invest for 13 years. £50 Per month
| 2% growth over 13 years | £8,914 |
| 5% growth over 13 years | £11,001 |
| 8% growth over 13 years | £13,737 |
Start plan when the child is 10 – invest for 8 years. £50 Per month
| 2% growth over 8 years | £5,209 |
| 5% growth over 8 years | £5,912 |
| 8% growth over 8 years | £6,738 |
£250 per month
Investing £250 per month world could yield a serious nest egg for a child. Perhaps enough for a solid deposit on a house.
Start plan at a child’s birth – invest for 18 years. £250 Per month
| 2% growth over 18 years | £65,043 |
| 5% growth over 18 years | £87,664 |
| 8% growth over 18 years | £120,822 |
Start plan when the child is 5 – invest for 13 years. £250 Per month
| 2% growth over 13 years | £44,572 |
| 5% growth over 13 years | £55,006 |
| 8% growth over 13 years | £68,685 |
Start plan when the child is 10 – invest for 8 years. £250 Per month
| 2% growth over 8 years | £26,047 |
| 5% growth over 8 years | £29,558 |
| 8% growth over 8 years | £33,690 |
So as you can see, the power of compound returns means your money can be working hard for you while you’re getting on with the serious business of raising a child.
Of course, any decision should be researched beforehand. I am not a financial adviser and this article does not constitute advice. If you require a financial adviser, visit unbiased.co.uk for a list of qualified advisers local to you.
What happens when my child turns 18
The JISA becomes the property of the child when they turn 16. However, they can’t manage the account and access the money until their 18th birthday.
At this point, the JISA converts to an adult ISA and they can manage it as an adult would.
I hope this has given a good overview of the power of putting money away for your child sooner rather than later. For more articles like this, please check out Money Blog Scotland.
Thank you Jim for this post all about when to start investing for a child!