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Parents not taking enough risk, says UHY Hacker Young

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Just a quarter of the money saved in junior ISAs is invested in shares, says national accountancy group UHY Hacker Young, suggesting parents may be being too cautious.

The latest figures show that, of the total £578million invested in Junior Individual Savings Accounts (ISAs) in 2013/14, only £147million was subscribed to shares, with the rest allocated to cash.

Adults were willing to take more risk with their own savings, allocating almost a third (32%) of their ISAs to shares last year – some £18.4billion of a total ISA pot of £57.3billion.

UHY Hacker Young says that since junior ISAs are generally used as long term savings vehicles for children, a higher weighting of shares – though potentially riskier in the short-term – could be a better strategy, as it is more likely to deliver greater returns over a longer period. The group also warned that too high a proportion of cash could actually turn out to be recklessly cautious.

Mark Giddens, Partner at UHY Hacker Young says, “Parents tend to be particularly risk-averse when investing for their children – more so than they are for themselves – especially if funds come from an inheritance or a gift from relatives. They don’t want to chance a drop in value.”

“Having a higher allocation of savings in cash might seem like the safest option, but even a cautious approach can carry risks. Cash is not always king.”

“While a high proportion of cash may be a sensible bet for older teenagers who want to access the funds when they reach 18, with interest rates at record lows, it’s less likely to pay off for many children, who could see the value of their savings eaten away over the years by inflation.”

Bank of England figures show that average UK lenders’ interest rates on ISA products were just 1.18% in July (latest figures available). According to the Office for National Statistics, the rate of inflation for the year to July stood at 1.6%**.

Adds Mark Giddens, “After the shocks of the financial crisis, it’s perhaps not surprising that parents are erring on the side of what they see as caution. The well-known caveat that investments could go down as well as up has been brutally reinforced.”

“However, with the FTSE recently hitting its highest levels since the start of this century, the potential upside should not be forgotten, as part of a balanced investment strategy.”

Earlier this month, the FTSE100 hit 6,873.6 – its highest close in 14 years.

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