Junior ISAs (JISAs)
Neil Stewart is a Financial Adviser holding the Diploma in Regulated Financial Planning. This article is not financial advice, it is for your general information and is not intended to address your particular requirements.
When my second child was born, I opened a Junior ISA for her whilst we were still in the labour ward. She was less than an hour old and she was invested in the stock market. This likely says a lot about me, but it does tell you that I practice what I preach.
Junior ISAs are essentially the same as adult ISAs in that any capital within them is shielded from tax on income and gains.
The difference between a Junior ISA and an adult ISA is that the capital is inaccessible until the child turns 18, and the yearly contribution limit is £9,000 versus the £20,000 for the adult equivalent.
A parent of the child can open a Cash JISA or a Stocks and Shares JISA. Stocks and Shares JISAs carry investment risk, but with investment risk comes the potential for a greater return than cash interest.
Again using my children as an example, when my eldest was born we began receiving £84 per month child benefit. We were in the fortunate position that we didn’t need this extra income, so instead I set up a monthly contribution to a Junior ISA. I decided to top it up a little to £100 per month.
Investing £100 per month, increasing this investment by 2% each year to roughly account for inflation, assuming a 5% return (this certainly cannot be assumed) means that Caitlin on her 18th birthday could have access to £40,497 from a sum of £25,694 invested over 18 years.
That’s some 18th birthday party isn’t it? Which leads me on to a very genuine worry:
“I don’t trust my kids not to blow it on cars, parties, clothes etc.”
I’m not sure I can trust Caitlin either, she is only 3, but if this is a real concern perhaps a Junior ISA isn’t for your child. You could take the same strategy but in your own name in a regular ISA.
Investing in your name has the added benefit (in addition to the control freak in you) of keeping the money accessible, but then again perhaps it would be better for your kids or grandkids if you didn’t have that option!
The price of shares and investments and the income derived from them can go down as well as up, and investors may not get back the amount they invested.
The investment growth figures quoted in this article are merely examples to consider the power of compounding.
In reality, investment returns differ year on year and losses are also possible.