Saving for Your Child’s Future

Raising a child can be incredibly, sometimes frighteningly expensive – from the early days when you need to ready the nursery, bulk-buy nappies and get other equipment that can’t be handed down such as car-seats, to their early years when they grow so quickly you seem to buy them a whole new wardrobe every six months. Then, as they approach school age you may have to start thinking about fees if you’re going down the private route, and certainly costs such as extracurricular trips, after-school clubs, uniforms and sports equipment.

It doesn’t end after school either – there is university to think of, and who knows what that will cost in the future. Teaching your children to drive gives them their independence, but also costs a lot of money, and you may be asked to contribute to wedding funds at some point. Then you have all the family holidays to consider too. It’s no wonder some parents feel overwhelmed with financial worries.

So what are the best ways to prepare for the expenses of the future? There are many techniques you can employ to save, with the most common including:

Savings Accounts

They remain popular with parents despite poor interest rates at the moment, which are showing no signs of improving any time soon. Often started at the Post Office before they are transferred to a bank or building society, rates vary wildly. So it is important to check online and in the high street for the best deal. Many children’s accounts come with free gifts (remember the Natwest piggy banks?) that encourage them to put a few pounds a month too.

You should compare rates on an annual basis because many accounts draw you in with high interest initially, but then lower it after one to two years. Although switching regularly can be a hassle it could also earn you enough to make it worthwhile.

NS&I Bonds

Premium bonds usually generate no interest, but there is a chance that you might benefit from this lottery-like system. If you somehow get very lucky it could pay for your child’s university tuition in one go. There wouldn’t be any point in using this as a sole saving method, but as part of a diverse portfolio it may be worth doing.

ISAs

Junior ISAs (JISAs) replaced Child Trust Funds. They work in much the same way as adult ISAs, split between cash and stocks & shares. If you can get an interest rate of around 5% then a £50/month investment could add up to around £18,000 by the time your child turns 18, if you start when they’re very young. From 1st July this year the annual limit you can put in will be raised to £4,000. Since you’re saving for your child’s future, prudence is wise, so look for lower-yield investments that will come with a corresponding lower risk.

Pensions

It may seem weird to be saving for your own child’s retirement, but it is another option many parents look into. There are also tax benefits involved that can benefit both parent and child.

It can be difficult to know how much to save each month, so the safest bet is just to save as much as your household finances will allow. If relatives are struggling to think of gifts for birthdays or Christmas, then suggest they make a small contribution to the savings pot – not very exciting for your kids of course, but it can always be combined with a small present.

And don’t forget to get your children involved too as it can really help with teaching them good financial practices for the future. If they earn pocket money or have a part-time job, suggest they put aside 10% or so each month, and from time to time they can take money out to treat themselves.

How do you save and how do you teach your children about money?

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