13.12.2024

Just 10% of parents willing to invest a Junior Isa

Despite inflation and poor interest rates hammering savings accounts, parents are still shunning the potential of bumper returns through stocks and shares investment, according to new research.

A poll of 2,018 parents and grandparents, conducted by mutual financial services firm OneFamily, found 90 per cent of parents who are saving for their children are not using a stock and shares junior Isa.

Yet parents who invested £5,000 into a fund tracking the MSCI AC World Index five years ago would have given their children a pot now worth £9,850 – £4,000 more than from a cash junior Isa.
If you are tucking money away for ten years or more, then don’t worry about these short term ups and downs as the passage of time irons out the bumps, according to Jason Hollands

Those who put the same amount into a junior cash Isa offering 3 per cent interest would have yielded £5,808 over the same time frame – assuming interest is calculated and compounded every month.

The calculation is also based on dividends being reinvested over the time period and does not take into fund or platform charges.

Despite the potential for eye-catching returns through investing, almost half (49 per cent) of respondents admitted to saving via a standard children’s account, while 26 per cent said they did so through a cash Isa.

It is worth noting that the markets have had a particularly good five years. Investors should not assume that such stellar returns will be replicated in the future but it is conceivable that they will trump interest offered by vanilla saving products.

Some chose to ignore accounts designed to help parents save for their offspring all together. Around 15 per cent of respondents said they have a separate account in their name, and another 7 per cent said they just keep the cash at home.

It pays to invest 

If you wish to save for your children through a junior Isa, the consensus among investment experts is to ignore the cash variant and opt for one that offers investment exposure because of the corrosive impact of inflation on the former.

While stock markets can be incredibly volatile on a day-to-day basis, a glance at history shows that they have a knack of delivering consistent and convincing inflation beating returns over long periods of time.

As most junior Isas are going to be inherently very long term, because they cannot be accessed until the child is 18, there is ample time for short-term bumps in stock markets to be ironed out, says Jason Hollands, managing director of investment firm Tilney.

Holland labels cash junior Isas as utterly pointless other than as an option for teenagers aged 16 or above who might shortly need to use their pot and therefore want to remove the short-term risk of a sudden loss of value.

He adds: ‘Even if you felt it would be good to have some cash set aside for a child as well as an investment, why any one would want to do this via a cash junior Isa is a bit of a mystery as children, like adults, enjoy tax allowances and need not pay tax on savings interest anyway, let alone through a scheme where the money would be tied up and completely inaccessible until they are 18.’

‘I believe it is right to invest in a global basis rather than narrowly restrict your choice to the UK, so choose a good global fund such as FundsSmith Equity, Lindsell Train Global Equity or the Foreign & Colonial and Scottish Mortgage investment trusts.’

7 in ten worry about kids future

Of the parents who are saving for the long-term future of their children, the average they save is £100 a month, according to OneFamily.

Concerns over the financial outlook once their children reach adulthood is one of the main concerns that drives parents to save on their behalf, the research found.

Nearly seven out of ten parents (68 per cent) admit they worry about their children’s financial future, and 44 per cent said they felt guilty they won’t have it as good as them financially.

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