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Give a Christmas gift to support their future

Does the thought of Christmas shopping for more plastic toys make your heart sink? While the magic of Christmas is exciting for children, in many households the volume of material gifts can create a feeling of unnecessary excess.

Whether you’re a parent, grandparent, godparent, aunt, uncle, other relative or family friend, it can be difficult to keep coming up with ideas for what to get the kids for Christmas, especially if it feels like they already have so much.

So why not do something different this year, and consider giving a gift that reduces waste and gives a child a healthy financial future?

What is a Junior ISA?

A Junior ISA (JISA) is an ISA which a parent or guardian sets up for their child, but that anyone can contribute to. No tax is payable on interest, capital growth or dividends. When the child turns 18, they can access the account and use the money to help pay for things like university fees, driving lessons, or living expenses. Or they may choose to continue to save and invest for their future — their JISA will automatically transition to an adult ISA account.

In this tax year, up to £9,000 can be contributed by parents, other family members or friends for each child[i].

Can a child have a pension fund?

As with JISAs, anyone can pay into the pension on the child’s behalf (although it must initially be set up by the child’s parent or guardian).

Saving through a pension may also help reduce Inheritance Tax liability. For example, payments from grandparents may be covered by the annual £3,000 IHT gifting allowance, or the exemption for payments made from income[ii].

 

Why give a Junior ISA or pension for Christmas?

While a JISA or pension fund may not be at the top of your child’s Christmas list, it is a gift for a lifetime and one they will thank you for in years to come. It will bring them huge benefits, save you time and it’s also better for the planet.

  • Reduce waste

An extra 30% of rubbish is produced and thrown away over the festive period[iii]. Much of that is plastic and cardboard packaging from toys and wrapping paper — Christmas has a lot to answer for when it comes to waste.

What’s more, with the UK spending a whopping £700 million on unwanted presents each year[iv], there’s every reason to give children gifts that don’t come wrapped in plastic or paper and that benefit the future of both the child and the planet.

  • Financial support for the future

While we can’t predict the future, many of us envisage certain life goals for our children. But whatever choices your children make in adulthood, they will benefit from funds to support them.

A JISA could help your child pay for further education, a house deposit, or volunteering experiences. With future generations living and working longer, a child pension could provide financial security in later life or the choice to retire early.

You may decide to invest annually as a Christmas gift or spread the cost over the year with monthly payments. As an example, if a child received £100 per month into their JISA for 18 years, it could generate a savings pot of £27,900. If they were to receive £750 per month (the maximum allowance) for 18 years, a pot of £209,000[v] could be generated*.

If you were to make a single investment, of £2,880 before tax relief, in a foundation pension when the child is five years old, they could receive a pot of £17,400 when they are 65. If you were to invest annually, paying £2,880 before tax relief each year from when the child turns five, the pot could reach £195,000 when they receive it at age 65.[vi] *

While it’s not something everyone feels comfortable thinking about, there is a chance that you may not be around when the child you care about reaches adulthood. Investing now and giving financial gifts for Christmas while they’re young can give you peace of mind that you’re helping to look after them, whatever the future may hold.

  • Educate children and help build healthy saving habits

“Educating the next generation in financial literacy is not a nice to have – it’s the best investment you can make to secure their financial future”, [external link to SJP news post –  https://www.sjp.co.uk/news/should-you-start-a-pension-for-your-child] says Rob Gardner, Investment Director at St. James’s Place[vii] and co-founder of RedSTART, a charity that seeks to improve financial education for primary school children.

When you give the gift of a JISA or pension fund, or if you are the parent of a child receiving one, talk to the child about the significance and generosity of it. Talk about what it’s for, how they might plan to use it in their future and the importance of saving. In doing so, you can gently educate your child about the importance of financial planning while instilling healthy saving habits.

In most cases, this approach builds a respect for money and young people make responsible choices when they gain control over their savings. However, if there is concern about the young person having access to their funds at 18, you might consider setting up a Designated Unit Trust, which gives the parent or guardian more control. It’s worth talking to a financial adviser about this.

If you decide to give a JISA or pension but also want to give the child a small gift to open on the big day, the book, Growing Your Acorns [external link to saveyouracorns.com website] by Rob Gardner, is a beautiful book that teaches children about the importance of saving.

  • Save you time!

The gift of a JISA or child pension will undoubtedly benefit a child in the long-term, but it also benefits you, too. You get to save yourself time and stress in the busy run up to Christmas and can enjoy the peace of mind of knowing you’re helping the young people in your life strive for financial wellbeing.

So instead of splashing out on that enormous Lego set or latest plastic gadget, invest in the bigger picture, both for those you care about and for the planet.

To find out more, visit https://laurajoycewealthmanagement.co.uk/

Laura Joyce Wealth Management is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority). The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.

*The JISA figures are based on an assumed annual growth rate of 5%, an initial charge of 5% and ongoing charges of 1.7%. They do not take account of inflation.

*These figures are illustrative and are not guaranteed. Actual investment returns may be lower than those illustrated. The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

 

[i] https://www.sjp.co.uk/products-and-services/investment/junior-isa

[ii] https://www.sjp.co.uk/news/should-you-start-a-pension-for-your-child

[iii] https://www.gwp.co.uk/guides/christmas-packaging-facts/

[iv] https://www.gwp.co.uk/guides/christmas-packaging-facts/

[v] Figures generated by Laura Joyce, based on an assumed annual growth rate of 5%, an initial charge of 5% and ongoing charges of 1.7%. They do not take account of inflation.

[vi] file:///C:/Users/holwa/Downloads/Foundation%20pension%20figures.pdf

[vii] https://www.sjp.co.uk/news/should-you-start-a-pension-for-your-child

 

 

 

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Posted on

February 28, 2022