BLOG: Back to school… time to invest in your child’s future
I’m lucky. My daughter likes school and can’t wait to go back. She’s eager to learn and take on new responsibilities… now she’s graduating from reception class to Year 1. And she’s been investing in her future by way of new colouring pencils, a pencil case and a handy little notebook.
Unfortunately, one of the things she won’t be taught at the moment is a lesson on money. She may get to start using coins for maths soon, but debt, finances and investing are still off the curriculum for most children of all ages.
So, it’s left to us, the parents, to do our best for now. And one way to do that is to invest in their future finances ourselves, by way of a Junior ISA.
Investing for their future
Every eligible child in the UK has an annual Junior ISA allowance and parents, grandparents and even friends can invest up to £9,000 each tax-year in these tax-efficient savings wrappers.
While most people won’t be able to save that much each year, even small amounts – like children – can grow quickly. The result can be a decent sum of money that will mean adulthood can begin on a firmer financial footing, with less reliance on the Bank of Mum & Dad.
A parent or guardian can open the account for a child and the money invested cannot be touched until the child reaches the age of 18. At that point, they can either spend the money – hopefully on something sensible – or roll it over into an adult ISA and keep investing themselves.
And if they witness the benefits of saving and investing, it will be a valuable lesson that lasts a lifetime.
Doing the maths
Let’s assume you’re fortunate enough to be able to save the full £9,000 each year from the day your child is born until they reach 18. Let’s also assume that this money earns a return after fees of 4% per annum.
By the time they reach adulthood, they could have almost a quarter of a million pounds to their name.
Of course, investments are not guaranteed, and their value can go up and down, but with 18 years to invest, there is plenty of opportunity to ride out those market movements.
And much more modest amounts can also add up over time. Assuming the same growth rate of 4%, regular monthly savings of just £50 could result in a pot of money worth almost £15,800 – an amount most young adults would be very grateful to receive.
What’s more, friends and family can also contribute with Christmas and birthday money, or regular payments themselves.
Making good choices
When it comes to choosing where to invest money, I’m a firm believer that picking a fund that the child can relate to will help them be more engaged and therefore more likely to invest when they become adults themselves.
Here are a few examples I like that you could consider:
Mid Wynd International Investment Trust
This trust is a core option for any investor and taps into nine distinct trends – one of which is screen time. The other eight are automation; online services; emerging markets consumer; scientific equipment; healthcare costs; low carbon world; high quality assets; and fintech.
Artemis Positive Future
Launched in April 2021, this global equity fund comprises a highly concentrated portfolio of growing companies, with a bias towards mid-caps. The four-strong team is looking for those firms making a material positive impact on the world through either environmental or social improvements.
Capital Group New Perspective
This global equity fund looks to capture the companies that are leading change in global trends. The team aims to identify firms in the early stages of their growth trajectory and will want to hold them as they become future winners.
Sanlam Artificial Intelligence
This fund uses an artificial intelligence (AI) system to help find companies whose business models are aligned to benefit from this growing theme. The fund can invest in businesses of almost any size and in more than just technology stalwarts; around half of the portfolio can be found in the healthcare, financial and consumer-related sectors.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. Juliet’s views are her own and do not constitute financial advice.
Juliet Schooling Latter is research director at FundCalibre