The gift of money: financial presents for kids this Christmas
This year’s letter to Father Christmas has being written and sent off to the North Pole. While its contents are wide and valued – as pretty much everything my eldest see’s on television right now is a contender – there is one thing she has not asked for: money.
Of course she hasn’t, she will only be four next month. Four year old girls want princesses or anything that is related to Frozen. However, in only 14 years times things will be very different. This little four year old will be thinking of going to university, or wanting a car, or something else equally expensive.
So as we enter the home run of the Christmas shopping stretch, putting something away for her and her little sister to open when they reach 18 or 21, doesn’t seem such a bad idea.
According to the Association of Investment Companies (AIC), over 18 years to 31 October 2015, a £100 investment into the average investment company has grown to £428, while a £100 lump sum invested annually each year has grown to £4,724.
Investment companies – or investment trusts as they are more commonly known – are of course not the only type of fund or investment a parent may wish to consider when putting away money for their child’s future.
All forms of collective investment funds, both closed-ended (investment trusts) and open-ended (unit trusts or Oeics) can be held in a Junior ISA, or JISA as it’s now become known. Many investment trust companies also have their own sponsored children’s savings schemes. Minimum contributions into both tend to start between £25-30 per month, or a £50 lump sum.
While held in the parent’s or guardian’s name, grandparents and friends and family can also contribute, making them a viable Christmas present alternative.
Annabel Brodie-Smith, communications directors at the AIC, says: “We all want our children to enjoy Christmas with lots of toys, but any parent knows that some presents are opened and quickly forgotten.
“Parents might like to contribute towards a gift that can last long into the future and an investment company can be a useful way to access the long-term potential of the stock market. Investment companies have strong long-term performance and there are a diverse range of sectors and risk profiles to choose from.”
Taking some risk
If you do go down the stocks and shares JISA route, the first step is to decide a sensible mix of funds to invest in. Even if you don’t manage to start in the early days, if you are saving for them until they reach 21, you are giving yourself a nice long-term horizon so don’t be afraid of thinking of an all out growth strategy to start with.
Hargreaves Lansdown’s head of research Mark Dampier says it is appropriate to take a maximum amount of equity risk “as we have seen how the passage of time increases the likelihood that equities will deliver strong positive returns”.
As a result he says a mock portfolio of funds for them would include a much higher weighting in emerging markets (he picks First State Asia Pacific Leaders and Newton Emerging Income). He also recommends a small cap fund such as Marlborough UK Micro-Cap Growth.
However, funds and JISAs are not the only potential avenues for parents. Axa Wealth’s head of investing Adrian Lowcock, picks out other options, or gifts, that might be worth giving this yuletide.
The first is perhaps the least obvious: gold coins.
Lowcock says: “Mankind has been fascinated by gold for over 4,000 years – from the Bronze age through to modern city finance – and its allure remains strong. As an investment it is difficult to value, it does not produce anything nor does it generate an income, but it continues to be in demand by investors in times of crisis.”
While providing a valuable investment, Lowcock says gold coins also offer the recipient something funds and other savings schemes do not, something to appreciate and admire.
“There are a large number of coins from which to choose from ranging in value and age,” he adds. “The Royal Mint offers a wide range of gold coins commenting various events.”
Then there are the less exciting options such as Premium Bonds or cash savings accounts. Lowcock says while anyone over 16 can buy Premium Bonds in their own name, relatives can buy them on behalf of under-16s. The minimum purchase is £100 worth of bonds, with a maximum holding of £40,000. Premium Bond holders get placed in a monthly prize draw and the average prize is based on an interest rate of 1.35% tax free.
“The odds of a single £1 bond winning in any one month are 26,000 to one,” he says.
However, he adds that each month bond holders have a chance of receiving a tax-free prize of between £25 and £1m.
“Premium bonds are backed by the government so there is an implicit guarantee of investor’s capital,” says Lowcock.
“However any prizes are down to luck and investors may not win anything.”
For those interested visit National Savings and Investments (NS&I) for more information.
Last but not least, Lowcock says that dedicated children’s accounts often boast the most generous interest rates on the High Street. For example, he says the Halifax Kids’ Regular Saver account currently pays 6% and allows savings per child of between £10-£100 per month.
However, the rate is guaranteed for only one year and interest is paid at the end.
The importance of all these schemes, in addition to JISAs, is that they may encourage the next generation to save in the future. Yes, they might not be a Buzz Lightyear or a PS4, but in the long term they might be equally as enduring.