Christmas is a time of joy, the season for giving and spoiling our children with gifts. There’s nothing better than seeing your little cherub’s face light up when they get exactly what they wanted. But wait…what if they get something they didn’t know they wanted – like a savings plan, or better still a savings habit! Apart from straightening their teeth, few things will have such a positive and lasting effect on their lives as taking some simple steps to secure a financially stable life for your children.
To a child, being taught the art of saving may not sound exciting now, but trust me it will be exciting when their savings plan matures in their 20’s, 30’s or beyond – this is when they will really thank you!
Your children will thank you for the ‘gift of saving’ in the future
A few ideas to get you going…
Start saving for them as early as possible.
It doesn’t have to be a huge sum but save!
There are lots of ways you can do this. A piggy bank may be great for smaller sums and smaller children – every child loves popping coins into their own piggy bank or rattling them out and counting them, but for anything more than pennies there are other options.
Every child has the full personal allowance which will cover a lot of interest from savings (see below). Aside from that, each child can also save up to £4,368 per year into cash or stocks and shares within a Junior ISA with no tax liability. For longer timescales, the stock market is likely to outperform cash. However, remember the value of an investment invested in the stock market can go down as well as up, so you may not get back the amount invested.
As a parent there are strict HMRC rules about how much cash you can give your child to invest – otherwise, parents would all be sheltering their savings in their children’s accounts for tax purposes.
As a parent, you can gift your child sufficient funds to generate £100 of interest a year without having any tax liability. This figure is per parent not per child. Two parents could gift sufficient to generate £200 of interest a year for each of their children. With current rates peaking at 4.5% (Halifax Monthly Saver) on a good children’s savings account that’s £2,222 pa or £185pm.
Donations from grandparents are not caught by this parental rule so they can be much more generous – may be worth some gentle encouragement!
Overall in the 2019/20 tax year, unless your little ones have earned income from a budding career (child actor or the next Justin Bieber anyone?) they can earn up to £18,500 from savings without paying tax on it (that’s the £12,500 personal allowance + £5,000 starting savings allowance + the £1,000 personal savings allowance).
If the above figures seem lofty and unachievable remember saving anything is good!
Think about this…if you only saved £50pm for 21 years and attracted just 2% interest this would mean you would have £15,642 to present to your little cherub as they head off into adult life – that’s a tidy sum!
Try this: Work out interest and investment returns on lump sums and regular monthly saving: Savings calculator
Think ‘save’ this Christmas, so before adding to your child’s mountain of primary coloured plastic, or contributing further to the mountain of teenage clothes currently on their ‘floordrobe’, suggest they invest some of the cash that falls out of their Christmas cards this year.
Teach the concept of spending less than they ‘earn’
Good luck with this one…
If you have teenagers you will be familiar with the reality of the bank of Mum of Dad. Until a few years ago I spent most of my weekends split equally between being a taxi, freezing on sidelines, and handing over cash like a walking, talking ATM. The first two I couldn’t do anything about but the last one is something I have resolved.
My children now have a card that receives a fixed sum as pocket money each month. From it, they have to budget for milkshakes with friends, entrance to cinema’s and save for expensive times like Christmas or Mother’s Day (!).
I use ‘Osper’ but there are several similar ones about such as ‘Go Henry’. It’s just a card that you load money onto and they can use either contactless or with a pin when out and about. They can also be used for online shopping – but I’ve used the app to deactivate that bit for now!
There are fees (Osper charges £2.50 per child per month). However, I do like the fact that both the children and I have an app that shows balances and transactions.
There’s one saver and one spender in my house! My spender has run out of money on a few occasions and has had to miss out on things, so soon altered her natural financial behaviour! It’s never too early to learn to live within your means and to save for that rainy day.
If your children went off to University this year and will shortly be returning home after their first term, then maybe a dog walk or a cuppa together is in order. This is when you subtly bring up the topic of their money and how they have found budgeting for themselves. If it’s going well they can pay for the coffee – Well, they do ‘owe’ you!
Think about their inheritance
If you don’t want the taxman to take a large chunk of your hard-earned legacy (or that of your parents), you can start gifting your assets away. This will gradually reduce your estate and lower your family’s inheritance tax bill when you die.
If you gift more substantial amounts, more than your annual £3,000 ‘gift allowance’ you must live for at least another 7 years for it to be out of your estate for inheritance tax purposes. A full list of allowances is here: Government Inheritance tax.
Alternatively, you can invest in Business Property Relief (BPR) qualifying businesses or planning schemes that allow the assets to pass to your beneficiaries IHT free, as long as you have owned them for at least 2 years, and they are still held at the date of death. However, these investments aren’t for everyone, as they are high risk and your capital is at risk.
Want to be reeaalllllly long term? Yes, we’re talking pensions!
Ok, I have to admit this is one you may want to keep quiet about until they are much older for fear of losing your remaining parental cool points (I’m in denial as I still like to think I have some!). Setting up and contributing to a pension for a loved one is perhaps the least instantly gratifying of all the Christmas gift ideas. You may not even be around to witness the benefit it brings and, for that reason alone, it’s probably more of an option for those with eyes on the distant future.
Not only do pension contributions gain tax relief – even for non-tax paying children, but the effect of compounding over the years will also probably make you wish that a nice relative had set up a pension for you when you were young!
Encourage your children to appreciate how lucky they are
It’s so easy to get caught up in the commercialisation of Christmas we often forget it’s a time for thinking about others, and spending time with your family. But what about those without the luxury of a family, or the money to kick back and enjoy the time?
Resolution Foundation recently released some startling figures. The number of children living in relative poverty is on course to hit 37%, topping the previous record high of 34% recorded in the ‘90s.
Hopefully, no-one reading this will be in this position, but chances are you’re not living too far from someone who is – and that’s a really worrying thought!
Tis the season of goodwill after all!
Take some time this Christmas to sit down as a family and think about those who may not be as lucky as you, and decide how you all may like to help this year.
Maybe it’s the environment making you worry about your children’s future? Or an illness that is close to your heart and you wish research was further advanced to help a loved one? Dementia is close to my heart for this reason.
We sit down and chat this over in December every year. We agree to go without something extra each month and send the money to a charity of our choice. Each family member gets to pick one. Not large sums but an amount the children can relate to. Maybe it’s £5 because that’s what they would spend at Costa with a friend having hot chocolates and muffins after school. Instead, they send that amount each month to their charity.
Most charities will send emails or letters throughout the year to keep you up to date and let you know how the money you send is being used. If you set up a direct debit and put your child’s name on the application they will receive the letters or emails. This way, all year they can be reminded what a good thing it is to think of others.
Alternatively, you could take it a step further and take them volunteering. I heard recently of someone who takes her teenagers out with a local charity giving out hot food and sleeping bags to the homeless at this time of year. We can tell our children to be good people but the best way is often to lead by example.
That’s all folks
These are my top tips to add some cheer not just to this Christmas but to many future ones for your family – and maybe even people you don’t know.
Whichever way you approach Christmas this year, I wish you a very happy one! Whether you are on call at work, away from your family or snuggled up with them all, make it a good one.
See you on the other side in 2020! I think it’s going to be quite a year.