How to invest in your child's economic future

As parents, securing your children’s financial well-being is one of the most impactful legacies you can create. In an era of rising education costs, competitive job markets, and economic uncertainty, strategic planning today can lay the foundation for your child’s independence and prosperity tomorrow.

Harness the Power of Compound Growth

Time is your greatest ally when building wealth for your children. Even modest contributions made early can grow exponentially over decades. For example, investing £100 monthly in a Junior Stocks and Shares ISA (JISA) from birth, assuming a 6% annual return, could grow to over £40,000 by the time your child turns 18. These funds can then support university fees, a first home deposit, or entrepreneurial ventures.

The UK offers several government-backed savings schemes designed to help families grow wealth for minors

Junior ISA (JISA): Parents or guardians can contribute up to £9,000 annually (2024/25 tax year) into a JISA. Investments grow free of income tax, capital gains tax, and dividend tax. At 18, the child gains full control of the account.

Child Trust Fund (CTF): If your child was born between 2002 and 2011, they may have a CTF. While no longer available to new applicants, existing accounts still offer tax-free growth.

Lifetime ISA (LISA): Once your child turns 18, they can open a LISA, where contributions receive a 25% government bonus (up to £1,000 annually) for buying a first home or retirement savings.

Prioritize Education Savings! University tuition fees in the UK now exceed £9,000 annually, with living costs adding thousands more. So open a dedicated savings or investment account for education as soon as possible.

Teach Financial Literacy Through Practice

Financial education is as critical as saving. Involve your children in age-appropriate money decisions to build confidence and responsibility

Young children: Use piggy banks to teach saving vs. spending.

Teens: Introduce budgeting apps and encourage part-time work. Open a junior bank account to familiarise them with managing money.

Young adults: Discuss credit scores, student loans, and the importance of avoiding high-interest debt.

Invest in Their Name (But Mind the Tax Rules)

Investing in your child’s name can reduce your household tax burden, as children have their own income and capital gains allowances (£12,570 and £6,000 respectively in 2024/25). However, beware the “£100 rule”: if parents contribute to a savings account or investment yielding more than £100 annually in interest, the excess is taxed at the parent’s rate. This rule does not apply to JISAs or CTFs.

Consider Property as a Long-Term Asset

Property remains a cornerstone of UK wealth building. Options include:

Help to Buy ISA: Though closed to new applicants, existing accounts still offer a 25% government bonus for first-time buyers.

Joint ownership: Purchasing a buy-to-let property with your child’s future in mind. Rental income can fund maintenance costs, while capital growth builds equity.

Gifted deposits: Parents can gift up to £3,000 annually tax-free (or larger sums if they survive seven years) to help with a home purchase.

While retirement seems distant for a child, contributing to a pension on their behalf can yield staggering results. A one-time £3,600 contribution (including tax relief) to a junior pension at birth could grow to over £150,000 by age 60, assuming 5% annual growth.

Avoid Common Pitfalls

Overlooking inflation: Ensure investments outpace inflation. Diversify with equities or inflation-linked gilts.

Neglecting flexibility: Life goals change. Opt for accounts that allow adjustments to risk profiles or withdrawal terms.

Forgetting to update wills: Ensure guardianship and inheritance plans are legally documented to protect your child’s assets.

Balance Support With Independence

While providing financial security is vital, empowering your children to manage money responsibly is equally important. Combine structured savings with open conversations about financial planning, risk, and delayed gratification. By blending practical tools with education, you equip them not just with resources, but with the skills to build their own prosperous futures.

Consult a qualified financial adviser to tailor strategies to your family’s circumstances. Review your plan annually, adjusting for life changes, economic shifts, and evolving goals. Remember, the greatest investment you can make is in their confidence and capability to navigate the financial world with wisdom.

This article is for informational purposes only and does not constitute financial advice. Tax rules and allowances are subject to change.