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Saving for your child's future

11 June 2021

Talk Education

We are delighted to bring you the next instalment in our Finance Focus series for parents: a guide to saving for your child’s future. Starting a family is the utmost responsibility and a huge financial commitment; parents want to give their child the very best upbringing, to provide them with opportunities that will set them in good stead later on.

Whether you’re looking to save money for your child’s university fees or to give them a financial leg-up onto the property ladder, investing for your child's future is the greatest gift you can give. Putting money aside whilst your child is young is a shrewd, tax-efficient way to help them begin adult life with a healthy savings pot. By incorporating such practices on behalf of your children, you are setting an example of how to look after money and, in turn, we hope this would encourage them to act responsibly when they become financially independent themselves.

Previously, we published a guide to planning for your child’s school fees.  Education is a key financial concern, and as discussed in our previous article, a private school education has been described by some, as one of the most important investments a parent can make for their child. Despite the cost of a private education increasing at its slowest rate on record due to the pandemic (1.1% year on year in 2021, compared with 4.1% in 2020)[1], the costs still continue to rise emphasising the need to plan ahead financially when you start a family. 

There are a number of structures or tax wrappers available that can be considered as saving vehicles to help you put aside money for your children, however not all vehicles will be suitable for each individual circumstance. The most appropriate structure is likely to be dependent on your savings objective and time horizon. 

In a recent interview with Talk Education, 'How to save for your child's future', Swaati Taylor, Wealth Planner at LGT Vestra, shares some of the options available to help parents plan ahead, and discusses the various structures and key points to be considered:

  • The options available to parents to save for their children - including ISAs, Junior ISAs, investment accounts and pensions, and the merits of building up a portfolio of different savings options to meet different objectives.
  • Tax effectiveness and liability.
  • Flexibility - your options if you’d like to be able to access the money rather than lock it away for a fixed time.
  • Responsibility - advice for parents who may be concerned about trusting their child with a large sum of money at the age of 18.
  • Investing on behalf of your children - the parental settlement rules.
  • Grandparents and gifts - tax-efficient means for relatives to gift your child a sum of money.

structures table

To provide an example that demonstrates the value in putting aside savings for your children's future, if you were to save £100 a month from the month your child is born until age 18 (i.e. £21,600 in total over 216 months ), into a cash ISA that returns 1% per annum, this could provide a tax free fund of ~£23,675 by the time your child is 18. However if you invest the same savings into a stocks and shares ISA, whereby the annual investment return is 5% net of fees, this could provide a tax free fund of ~£35,066 in the same amount of time.

The next video in our Finance Focus series for parents will include our ‘student finance guide’ - a best practise on budgeting, saving and investing and thus, what every young adult needs to know.

Talk Education

Talk Education's dynamic digital schools guide provides the highest-quality information and guidance on the British independent-education system, giving parents a unique behind-the-scenes view of UK private schools and unlocking the secrets of a world that can seem mysterious and complicated. Their expert team has a combined total of more than 75 years of visiting private schools, as well as unparalleled contacts with school leaders; with a parent-advisory service and educational-events programme, they are a one-stop education shop, helping parents find the right school for their child.

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[1] Independent School Council’s annual census

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This communication is provided for information purposes only. The information presented herein provides a general update on market conditions and is not intended and should not be construed as an offer, invitation, solicitation or recommendation to buy or sell any specific investment or participate in any investment (or other) strategy. The subject of the communication is not a regulated investment. Past performance is not an indication of future performance and the value of investments and the income derived from them may fluctuate and you may not receive back the amount you originally invest. Although this document has been prepared on the basis of information we believe to be reliable, LGT Vestra LLP gives no representation or warranty in relation to the accuracy or completeness of the information presented herein. The information presented herein does not provide sufficient information on which to make an informed investment decision. No liability is accepted whatsoever by LGT Vestra LLP, employees and associated companies for any direct or consequential loss arising from this document.

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