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Parents missing out by saving in cash

Cherry Reynard
Written By:
Cherry Reynard

While almost three-quarters of UK parents are saving for their children’s future, 90% are sticking to cash, which means savings may not be keeping pace with inflation.

HM Revenue & Customs (HMRC) figures show that only one in ten parents saving for their children are using a stocks and shares Junior ISA, in spite of historically low cash rates, and high investment returns in recent years. Parents save an average of £100 a month.

Junior ISA provider OneFamily said that parents who had invested £2,000 in a OneFamily Junior ISA three years ago, would now have £2,505 in their account compared to just £2,082 for a parent who opened up a children’s bank account. Parents choosing cash either have a standard children’s account (49%), a cash ISA (26%), a separate account in their name (15%), or just keep the cash at home (7%)

Nearly seven out of ten parents (68%) admitted to worrying about their children’s financial future, nearly half (44%) said they feel guilty they won’t have it as good as them financially, and four in ten (39%) said they don’t think their children will have the same career opportunities they did.

Why consider a stocks and shares ISA for your child?

Stock markets have tended to produce better long-term returns for savers, and have offered greater protection against inflation. They also offer a higher income (currently around 4% for companies in the FTSE 100).

However, many parents are turned off by the prospects of capital losses. Stock markets can bounce around, sometimes quite unpredictably, and it can be uncomfortable to take the risk. As a result, many just stick with cash.

The key difference is that when saving for children you have time on your side. You might have 15-20 years to invest and can therefore afford to ride out the highs and lows of stock markets.

Saving monthly offers some protection. You will be buying in at different times in the market and at different price points. This helps smooth out your returns over time.

For more information, see YourMoney.com’s video on How and why to set up an ISA and/or pension for your child.