A third of parents saving into Junior Isas for their children plan to keep them aware of their windfall until they turn 18, new research reveals.
Most of those who keep it a secret feel that their children are not yet financially mature enough to know, while others fear spending all their money immediately to reach adulthood.
Parents can put away up to £9,000 a year into a Junior Isa for a child, which can take control at the age of 16 but can only make a withdrawal at 18.
How will your child pass their Isa at 18? Some parents fear losing their money immediately, even though they can keep some or all of that money invested if they want.
Only a parent or guardian can open a Junior Isa in a child’s name before the age of 16, and the annual allowance can be split between a cash Isa and a shares Isa each year.
Many parents involve their children in decisions about their Isa and take the opportunity to teach them about money in general or how to invest.
But a survey of 500 parents who visited financial platform Interactive Investor in early March showed that a significant minority did not intend to tell their children about their Junior Isa until they were old enough. to access the account.
Some 44 percent of those who made this decision said their children were too young, 26 percent said they didn’t know why they were keeping silent, 13 percent feared their offspring would spend it all by age 18, about 12 percent thought it was revealing. it was inappropriate and 5 percent said their children found money boring.
Myron Jobson: Many parents fear their children are simply too young to know about a Junior Isa
“Building an investment fund to give your child a financial advantage when they reach adulthood is half the battle. Ensuring money is used responsibly is also a challenge,” says Myron Jobson, senior personal finance analyst at Interactive Investor.
“The nervousness of a significant portion of parents surveyed about telling their child about their Junior Isa is a worry they are simply too young to know.
“This could potentially lead to expectations about finances, an early sense of entitlement, or a misunderstanding about the value of money.”
Jobson says parents should consider their child’s age and financial knowledge, including the importance of budgeting, saving and investing, before talking to them about their Junior Isa .
“Make it a learning opportunity, explaining the purpose of the Isa, the benefits of saving and investing for the future, and consider involving them in decision-making,” he says.
“Parents and guardians also have a crucial role to play in helping their children develop a healthy relationship with money – especially since financial education simply doesn’t get the attention it deserves in many schools.
How to invest a Junior Isa (plus an overview of where other parents put the money)
Cash Junior Isas are “frankly useless”, except for teenagers who might want to use the money shortly and therefore prefer to eliminate the short-term risk of a sudden loss in value, according to Jobson.
“Most Junior Isas will be very long-term in nature, as they will only be available when the child is 18 years old.
“There is plenty of time to iron out short-term shocks to stock markets.”
He says passive funds – which simply clone the performance of market indices – dominate the list of best-selling investments within Junior Isas at Interactive Investor, making up seven of the top 10. In contrast, individual stocks, which are generally more volatile and can carry higher risks, dominate adult Isas on the platform, he adds.
The average pot size of a Junior Isa on the site is £14,128 and the average age of an account holder is 10 years old. There are no significant gender differences in how parents invest in children.
Best-selling investments: Interactive Investor reveals what customers invested in Junior Isas and Adult Isas between January and mid-March
Average composition of the Junior Isa portfolio on II
Sarah Coles, head of personal finance at Hargreaves Lansdown, says: “Each year, most Junior Isas paid out are cash products, as parents worry about the risks associated with investing.
“However, they don’t realize that there is also risk associated with cash, and that there are many ways to reduce the risks of investing in a Junior Isa.”
Coles says people tend to overestimate the risk of investing, partly because they focus on short-term fluctuations, but in the long term there is an opportunity to overcome this and their money has better chance of beating inflation.
She notes that cash may be the right choice for an older teenager, or when the money is needed for something very specific at a given time, and it’s the only amount that will ever be available for it .
At the same time, Coles says there are three ways to reduce the risks associated with investing: investing for the long term; spread risk across assets and regions; and cash dripping every month.
She adds: “The easiest way to take timing out of the equation completely is to set up regular payments into a Junior Isa by direct debit. This means that when markets fall, your money will buy more shares, so you can benefit from them rising and improve your long-term investment gains.
Alice Haine, personal finance analyst at Bestinvest, says a family of four who can afford it can potentially put away up to £58,000 free of income and capital gains tax at Isas every year.
“Considering all the financial challenges your children are likely to face, from college costs to high house prices and more, helping them build a nest egg now will be invaluable,” she says .
But Haines warns that any money put aside for a child in a Junior Isa is effectively blocked until they grow up, so if a parent needs the money for other expenses they will have to find the funds elsewhere.
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