What do you get your children for Christmas when they already have everything? Forget spending hundreds of pounds on toys and gadgets your children play with only once. Why not take some of the money you were planning to spend on presents and give your child the gift of a brighter future this Christmas?
I know what you are thinking; snoozefest, waking up on Christmas morning, watching your child rummaging through their stocking to unwrap a letter from the bank telling them you’ve opened a savings account in their name. Their eyes don’t light up with glee, and there could be some serious sulking on the cards.
Some advice to start off with, don’t let this be their only gift on Christmas morning or Father Christmas may be very unpopular. So, once you’ve chosen some presents from their Christmas lists, why not put the rest of the money you budgeted into a junior savings fund? Here are 5 reasons why you should get your child or grandchild a financial gift this Christmas:
Teach them to be good with money
Consumerism is at its peak during the festive season. People splurge thousands of pounds on Christmas, generating significant waste. Many parents are concerned with the message this is sending to the next generation about consumerism and the money lessons it’s teaching them.
Not trying to keep up with the Joneses at Christmas will set a good example for your children and may help to keep them grounded. Showing your children, from an early age, the routine of saving money will help them continue this in adulthood. This could help them avoid living from pay cheque to pay cheque, always splurging rather than regularly saving.
Give them a head start
Increasing university fees, living costs and an unrealistic housing market; there is no end to the expenses your child will face in early adulthood.
Helping your child to save for their future can be an enormously valuable gift, and a head start in life. Setting them up with a fund they can dip into for the important things in life, like university costs or buying their first car would be very powerful.
They may not miss that second princess tent or the slime factory that they never knew they were getting. However, they will undoubtedly appreciate their savings when they don’t have to survive on beans on toast to save up for their first flat deposit.
The gift that keeps on giving
The incredible thing about saving is compound interest; Albert Einstein called it the eighth wonder of the world. It really does make it a gift that keeps giving (or growing). Using This is Money Savings Calculator, if you save £500 a year, for 18 years, in a junior savings account or ISA, with an interest rate of 4.5%, at the end of the 18 years the total will be £13,825.62. Or £100 a year would work out at £2,765.46, which is a welcome contribution to their future.
Tax-free saving (usually)
Children have an annual personal tax allowance from birth. However, unlike most adults, children don’t usually earn any income. This means they can put quite a lot of money into a savings account before earning enough interest to pay tax, which makes childhood a great time to save.
Please beware if your youngster is a child prodigy with a high income. Most children are able to earn £17,850 in savings interest in 2018/19 before paying tax on it. This comprises a personal allowance of £11,850 plus the £5,000 starting savings rate, plus the personal savings allowance of £1,000.
Notice from HMRC
There’s usually no tax to pay on children’s accounts.
Tell HMRC if, in the tax year the child gets more than £100 in interest from money given by a parent. The parent will have to pay tax on all the interest if it’s above their own Personal Savings Allowance.
You must also tell HMRC if a child has an income over their Personal Allowance, e.g. from a trust. The child will have to pay the tax on this.
The tax year runs from 6 April to 5 April each year.
The £100 limit doesn’t apply to money:
- given by grandparents, relatives or friends.
- in a Junior ISA or Child Trust Fund. Junior ISAs and Child Trust Funds are long-term, tax-free savings accounts for children under 18 living in the UK. In the 2018 to 2019 tax year, the savings limit for Junior ISAs and Child Trust Funds was set at £4,260. No new Child Trust Funds can be set up but children born between 1 September 2002 and 2 January 2011 may hold one – in which case they can only contribute to a Junior ISA if the Child Trust Fund is first transferred over to a Junior ISA and the Child Trust Fund closed.
Children’s saving accounts get higher interest rates
Children’s interest rates are often much higher than those for adults. Saving money for your children’s future in their own junior account could be more cost effective than saving money in your account. Perhaps you know you want to pay for your children’s university fees or help them get on the property ladder. Planning to do this gradually in their junior accounts can be a cost-effective way.
Where is best to save on behalf of your children?
There are a few good ways to save for your child, so look around for the best option for your situation. According to the websites moneysavingexpert.com and moneyfacts.co.uk the Halifax have a 12-month bond for children with an annual interest rate of 4.5%.
If you would like to speak to a Capital financial planner about how you can help your child save for their future then click here to contact us today.
At Capital, we believe helping your children to save for a bright future is the real gift that keeps on giving.
The Financial Conduct Authority does not regulate Tax Advice.