What parent doesn’t want the best for their children? Providing them financial security and ensuring that they get the best education is one of the main preoccupations of a parent’s mind. If you want to invest in your child’s future you should start investing for children. Now.
When your child steps into the real world with a decent pile of money as leverage, that world becomes a whole lot easier. Having enough funds to pay for a great university or rent an apartment in the big city can give them an advantage. To make this dream come true, you can resort to investing.
Making strategic investments and teaching your children how to do the same is a very smart financial move. You won’t just hand them the money. They will observe and learn how the finances work.
If you want to learn how to invest for your children’s future and how to introduce your child to the intricacies of finances, just keep reading. Some exciting information awaits you!
Reviewing Your Financial Situation and Future Plans
You need to know what you have to work with and what you are aiming at before you venture into the investing journey.
First of all, think about when you’ll need the money. Do you plan to pull out the money in 10 years for college tuition? Or in 5 years? Or, are you aiming higher and you want to patiently wait 15 years and buy your child their own apartment?
Time matter because that’s what will define your investing. Some investments demand time for high returns.
If you have time in excess, you should aim for financial strategies such as passive investing. On the other hand, if you need your savings to be liquid you better opt for CD (Certificate of Deposit), for example.
Another thing to consider is the frequency of your investments. Will you add to the pile monthly or invest a larger amount all at once?
Think about this and then move onto the next step – deciding what type of investment is the right fit for you.
3 Ways of Investing for Children
The next big step is finding an investment match for your needs. This is often the toughest part because all those investment terms can give you a headache. So, let’s explain this plainly.
We’re cover three simple ways you can invest in your child’s future:
1. Junior ISA
This is a tax-free investment account for children under 18. With each new tax year, you can add more money to the account.
The Junior ISA allowance for the 2021/22 tax year is £9,000. It can be split between investing into stock and shares or cash.
If your investment is in the form of cash, you’ll accumulate interest without paying tax on the interest you earned. On the other hand, if you invest in stocks and shares, you are also freed from paying tax on capital growth and dividends they pay out.
You can control your child’s Junior ISA account until they reach 16. At the age of 16, children can control the account, but they can’t withdraw the money until they are 18. Thus, they have a chance to learn about the ins and outs of ISA account on their own.
2. National Savings and Investments Children’s Bonds (NS&I)
Parents, grandparents, or guardians can buy children (under the age of 16) their own National Savings and Investments (NS&I) Children’s Bonds. These bonds are a good investment opportunity as the return is guaranteed and you get a fixed level of interest for 5 years. There is also the fact that you don’t have to pay tax on the returns.
However, there is one trick. If you cash in the bonds early, there will be penalties. Which can actually be a good thing, as you’ll have no other option but to wait and watch as the interests accumulate.
3. Trusts
Investing in trusts is a legal agreement that involves three roles:
- The settlor – The person who places the assets (money, investments, land, etc.) into a trust
- The trustee – The person responsible for managing the assets
- The beneficiary – The child
When it comes to parental trusts for children, you can choose between the following:
- Bare trust
- Interest in possession trust
- Accumulation trust
- Discretionary trust
To exemplify how this works, let’s take discretionary trust as an example. With discretionary trusts, grandparents can act as a settlor and give the power to you (the trustee) to decide when and what assets will be given to your child.
The Art of Teaching Your Child About Investing
Helping your child develop financial literacy will make them grateful for the rest of your life. It is one of the most valuable skills for a successful future. And you have the chance to help them hone it.
But how to get your kids excited about finance when all they care about are toys and cartoons? Arm yourself with patience and time and get started.
Explain plainly how putting aside small amounts of money can help them achieve anything they wish. Paint them a picture of them living in a cool apartment, inviting their friends, and pursuing the job of their dreams.
Skip the financial lingo. Using words such as “stock market” and “savings accounts” will make them roll their eyes faster than you finish uttering the word. Keep it as simple as possible and adjust your explanations to their age.
Another common concern is when you should let your little one fly on their own. There is no specific age when the child should start investing. Some recommend that the hands-on practice can start at the age of 8 or 9, but you should adapt this to your child.
When they do feel ready, you should start with baby steps. Choose together the stocks for your portfolio. Or, give them a sneak peek in your investment book.
Take it one step at a time and you’ll get yourself an investing wiz.
Invest Your Way Through a Strong Start for Your Child
Money isn’t the most important thing in the world. However, it can help your child lead a simpler and happier life – and this IS the most important thing.
Embrace investing and you’ll have one less problem to worry about. Your funds will grow, your child will learn about finance, and you’ll know that you’re doing something amazing for your child’s future.