From junior ISAs, Premium Bonds, to pensions - there are many way you can give money to children.
While a Barbie dreamhouse or doll, a LeMieus Cockapoo, Furby, Marvel Squishy Beanie or a Paw Patrol Skye vehicle may be just some of the top toys for Christmas 2023 appearing on your child’s wish list, I always tend to upset a few children by suggesting their parents swap out the toys for a financial gift instead - one that could help toward their future.
But this year, Barbie has got me thinking.
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I was never into dolls (ok, my parents refused to buy me a Barbie), but I'm all for this new modern Barbie that has not only become a role model, but sparked conversation around money.
With financial literacy still not firmly set in the education system, could a toy that teaches you about financial independence, careers, and entrepreneurship really be a bad thing?
Today’s Barbie yells out financial independence and if you’ve seen the movie, you’ll see she does not go without; she had a dream home, she has a huge wardrobe, she has her own car, she doesn't seem to be tied to job with her mega social lifetime, she travels, and she is willing to learn and be in charge her own destiny. I like her,
So, while getting a Barbie may not be a bad thing, anything you can give to your children to help build a solid foundation for their future could also make the perfect financial gift this Christmas. Whether you're swapping them out for toys or not, here are the money gifts you can give to children.
Junior ISAs (JISAs)
Junior ISAs are a convenient way to give to children, because anyone can pay into one for them. And since the money is locked into one until they are 18, they’ll have no choice but to spend it on their future life goals (let’s just hope they are sensible). The hope is that they will use it to buy their first car, towards education or their first home.
Currently, you can put away up to £9,000 per tax year into a junior ISA - money that can grow tax-free. When your child is 18, it can be converted into an adult ISA, allowing them to continue to grow their money tax free.
If you are looking at cash JISAs, you can currently earn around £4.95% interest - but if you really want to give the gift that keeps on giving, then investing it for your child in stocks and shares JISA could make the money grow more.
According to figures from BestInvest, if a family invested the maximum £9,000 a year in a JISA for 18 years, based on a 5% annual compound growth rate the child would accumulate a pot of £269,048. If your child continues with it into an adult ISA at 18, with no further contribution, the pot could grow to £1 million when they hit age 44.
Further calculations from investment firm Hargreaves Lansdown show investing £1,000 then £250 a month into a Junior ISA for 10 years could give a child a pot of over £42,500. - that’s £6,712 more than they might make in a cash Junior ISA.
You could even add stocks of their favourite brands, like Mcdonald's, Apple or even Mattel for example.
Pensions for kids
Pensions are also a tax-efficient way to save for children and you can start to save for a child’s retirement fund with a Junior Sipp (self-invested personal pension) from birth.
You can pay up to £2,880 each tax year and the government adds up to £720 (20% tax relief) on top.
Both parents and grandparents can pay into a Junior Sipp.
If you put in £2,880 every year in a child SIPP, topped up with government tax relief of £12,960, you’d have saved £64,800 over 18 years. If those contributions grow by an annual compound growth rate of 5%, then at 18 the pension would be worth £107,619. Even if no further contributions were ever made after this age, the pension would tip over £1 million by the age of 62, just in time for retirement, BestInvest calculates.
The only downside with this is that they will have to wait a long time to enjoy this gift as currently the minimum pension age is 55, but this is set to rise to 57 in April 2028.
Premium Bonds for children – could they be mini millionaires?
NS&I Premium Bonds are a popular choice when giving financial gifts and could give your kids a chance to win a £1 million jackpot draw every month.
You can buy Premium bonds from £25 for anyone, but the parent or legal guardian will have control of the bonds if you’re buying for children, until they are 16.
Though Premium Bonds do not earn interest, the kids will enjoy checking for a prize each month, which could encourage them to save.
Children's savings accounts
If you want to keep things really simple, savings accounts are the perfect place to start. Some banks now have up to 5% interest - Nationwide for example pay 5% interest for up to £5,000. A standard bank account is a fantastic way to get them started with money basics.
Pocket money apps
If you really just want to give them some cash, then rather than slipping it into an envelope, you could give them a pre–paid card and boost their pocket money via these apps.
GoHenry for example is aimed at children aged six to 18. The prepaid card works like a debit card, but you can see how they spend their money and it’s easy to top-up.
A prepaid card is also a great educational tool to help them learn about how money works.
The cards can be personalised with their name and favourite images, ranging from unicorns to football players.
The card will cost you £2.99 a month, but it’s free for the first month.
Other prepaid cards to consider are RoosterMoney (£24.99 a year) and Nimbl (£2.49 a month), which work in a similar way.
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