Teaching children about money from an early age can set them up for a better financial future. As part of this, it's important to think about what to do with the money your child has earned over the years or given to them by friends and family.
You can explore several different options. If your child is very young, you may need to usepocket money app(opens in a new tab), so you can monitor your child's consumption. On the other hand, if your children are older, you may prefer to give them more independence and careBest bank accounts for kids(opens in a new tab).and there are savings accounts, junior ISAs, pensions andAdvantages and disadvantages of pocket money(opens in a new tab)consider.
Head of education at the property management company Killik & Co,Tim Bennett(opens in a new tab), tells us: "Young people are facing increasing financial challenges, from affording their first home to paying for life after work. Fortunately, they have one thing on their side - time. Plus, with the support of parents, grandparents, it can be a powerful ally, especially when that support is there from birth."
If you are not sure how best to start saving for your child, orShould you open a bank account for your child?(opens in a new tab), we've got you covered.
1. Open a bank account
Traditional bank accounts for children can usually be opened when your child turns 11. They work in the same way as adult accounts, but do not have an overdraft. Your child can get a debit or cash card with this account.
Or children over six can open pocket money apps such as GoHenry, HyperJar Kids and NatWest Rooster Money. They often come with prepaid cards and parents can track and monitor spending through the app.
- Encourage children to manage their money
- The pocket money app allows parents to set savings goals and spending limits
- some bank accounts pay interest
- No overdraft, so that the children remain debt-free
- Many pocket money apps have monthly fees
- Less parental control over bank accounts
- It cannot be opened at birth.
2. Open a savings account
Many savings accounts can be opened by parents or grandparents after the birth of a child. Depending on the account, your child can manage it even after the age of seven.
You can choose between convenience accounts that allow you to withdraw money when you need it, regular savings accounts that require you to deposit a certain amount each month for a year, and fixed rate bonds.
Lender's financial specialistcash float(opens in a new tab), says Sarah Connelly: "Fixed rate bonds offer higher returns if you're willing to invest your savings for up to five years. However, if you withdraw before the fixed period ends, it will result in a hefty penalty ."
Another popular option is to start a junior ISA (JISA) for your child, but there are no funds available until your child turns 18. Marketing Director, EQ Investors,ben faulkner(opens in a new tab), says: "A JISA is a tax-free savings account that allows you to save up to £9,000 a year as cash deposits or share investments. There's no tax to pay as the money grows within the JISA account and all withdrawals are tax-free.."
- it can be opened from an early age
- Different accounts to choose from
- Funds in the account bear interest
- JISA money belongs to the child - once paid, you cannot get it back
- Some savings accounts have limited access
3. Invest in it
In the long run, saving money for your child means that they have enough time to grow up. Instead of keeping all your child's money in cash, invest some of it in the share market – often through a junior ISA.
Founder of budget app HyperJar,Matt Megans(opens in a new tab), says: "For the more adventurous kids, junior shares and ISA shares are a great way to introduce your kids to risk and a long-term investment horizon. They can lose value depending on what happens in the stock market or earn a lot of income."
- can provide more income
- Investing made easy with the Junior ISA
- Higher risk, so you may end up with less money than you paid for
- You can only pay up to £9,000 per tax year into JISA.
4. Use a piggy bank
A piggy bank or piggy bank can be ideal for very young children. It helps them understand what different coins and bills look like and how to use money to buy things. It's also a great way to start earning pocket money, helping your child understand the importance of saving for the things they want.
- Simple ways to help young children begin to understand money
- can encourage children to save
- Perfect for pocket money or birthday money
- Children do not earn interest on their savings
- Money is easy to get and children can be encouraged to use it.
5. Buy high quality bonds
anyone canbuy high quality bonds(opens in a new tab)Intended for children up to 16 years of age. Senior bonds are issued by National Savings and Investments (NS&I), rather than earning interest, and you'll be entered into a monthly draw for the chance to win tax-free prizes of between £250,000 and £1 million.
HyperJar's Mat Megens says: "Senior bonds can be a fun way to save your child some money. There's always a chance – no matter how remote – that your child could win big, and monthly draws add a bit of fun to the idea of long-term savings."
- The minimum investment is £25
- Opportunity to win up to 1 million pounds per month
- Your funds are 100% backed by HM Treasury
- you may never win anything
- Inflation will reduce the value of your original investment.
6. To pay a pension
A less obvious way to save for your children's future is to start a pension for them. You can do this immediately after the birth of the child.
director of the financial consulting platform Unbiased,Karen Barrett(opens in a new tab), explains: "If you're willing to make them wait until retirement, then a Junior Sipp could do the trick. The big advantage here is that you get a 25% government incentive in the form of tax relief on everything you pay £2,880 a year... but the earliest I can access those funds when they turn 57."
- Parents can create a diary and transfer it to the child when the child turns 18
- You get a state subsidy of 25%
- Any increase in the child's pension is tax-free
- The money will be locked in until your child reaches the appropriate age - currently 55, rising to 57 in 2028.
- Your investment can go up and down/
What should you consider when deciding which one is best?
When you have to weigh what to do with your child's money, you have to consider many factors, such asSammy Elad-King(opens in a new tab)"Consider factors such as your financial goals, the ages of your children, your tolerance for risk and your preferences for cash availability," explains the founder of investment site Up The Gains.
Think about whether you want your children to have access to their money when they need it, or whether you want to build a reserve of savings that your children can fall back on when they grow up. Also consider factors such as how much you can deposit into each account and who can open and manage the accounts.
Sammie Ellard-King added: "It's always a good idea to consult with a financial professional to discuss your specific circumstances and make an informed choice that best suits your family's needs."