Parents’ loyalty to cash savings costs kids a small fortune
Analysis by Scottish Friendly and the Centre for Economics and Business Research shows that a cash junior ISA holder who maxed out their annual ISA allowance every year since 2011 would have built up a pot worth £52,200 after depositing a total of £44,800.
However, if the same person had opted to invest the cash into the MSCI World Index via a stocks and shares Junior ISA, they would have accrued a total of £84,500. That’s £32,300 more.
Since 2011, the MSCI World Index, a global equity tracker, has returned on average 6.5 per cent a year when you take into account fees. That is more than four times the 1.53 per cent average annual return of cash junior ISAs over the same 10- year period.
Despite the potential for higher returns on the stock market, cash junior ISAs remain a far more popular option among parents.
The number of account holders with a junior cash ISA has increased every year since they were first introduced, reaching 706,000 in 2019/2020.
By comparison, the number of stocks and shares JISA holders in 2019/2020 was just 317,000.
A survey of 500 junior ISA account holders carried out on behalf of Scottish Friendly found that 73 per cent held a junior cash ISA only.
It also revealed that adults on higher incomes were far more likely to invest into junior stocks and shares ISAs than those on middle and lower incomes.
More than four in ten (42 per cent) people earning over £50,000 have a junior stocks and shares ISA compared to just 17 per cent of those with an annual salary of less than £50,000.
The most common reason people gave for opening a cash junior ISA over a stocks and shares version was because they felt it was easier to manage.
Jill Mackay, head of marketing at Scottish Friendly, said: “For many parents saving for their children’s future is a major priority and giving them a helping hand as they start out in adult life is a big responsibility. Everyone wants the best for their child when it comes to building a nest egg so it’s understandable that many of us are tempted by a more cautious approach.
“However, if you’re putting money away for a child for up to 18 years, then it could make sense to consider investing as historically stocks and shares have proven to perform better than cash over the long term, albeit this is not guaranteed.
“Plus, investing isn’t just for the wealthy and well advised, it’s possible to invest from as little as £10 month. By investing even small amounts you could ultimately build a brighter start for your child.”