Is a junior ISA worth it and should you get one for your child?

It’s important to save for children, and a Junior ISA can be a great way to give your child a headstart in life. But is a Junior ISA worth it?

The tax-free savings product isn't for everyone and there are good reasons why you may want to avoid it altogether.

While you can currently stash up to £9,000 into a Junior ISA every tax year for your child, here’s why I think you could in fact be making one of the biggest mistakes with your financial planning.

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This may seem like an unpopular opinion, but if you’ve got a direct debit going into your child’s Junior ISA or you are throwing in lump sums as and when you can, then stop – read this first.

Have you topped up your ISA?

If you are paying into a Junior ISA for your child, but have not used your own ISA allowance, then stop. Maximise your allowance first.

Every adult in the UK gets a £20,000 ISA allowance every tax year - that’s £20,000 (plus the return you make) shielded from the taxman. You can also have multiple ISAs, making use of both cash and stocks and shares.

Now, there are many reasons why this makes sense.

First, money that goes into a Junior ISA is locked in. That means once you put it in, it immediately belongs to your child and it legally becomes their money to do whatever they please with as soon as they turn 18.

This also means that should you face a financial emergency, that will be money you will not have access to.

Having money in your own ISA means you can access it whenever you want and you can still use that money to provide for your child if you want.

Tax-free savings are gold dust, so top up your ISA first and allow yourself the flexibility you may one day need. Imagine having a plate of food and being told that if you fill it up, you can share it how you like. But fill up your child’s plate, and the food can only be theirs. You'd fill your plate!

Latest data from HMRC shows 60% of UK adults do not have an ISA, meaning millions are missing out on tax-free savings and investments.

Is an 18-year-old ready for a large sum of money?

We all like to believe our kids will grow up to be sensible, but the reality is harsh and every child is a potential delinquent.

The biggest failure of Junior ISA is that the money can’t be accessed by the parents and that they must pass legal ownership over to their child at 18.

If this doesn’t concern you, then it really should. Will your 18 year old be ready to handle potentially a large sum of cash? The fact is, you do not know.

While you may like to think they will use it for further education, driving lessons, maybe towards a house deposit, the fact is, they may well spend it on a party, holiday, or something worse!

Rules allow them to withdraw the lot and spend it as they please.

The concerns are real, with some Reddit readers asking if they can stop their child spending the money and others worried about giving their teen too much too soon.

JISA warning: "Help. I need to find a way to stop my son accessing and wasting his £200k Junior ISA on a Lambourghini." from r/FIREUK

Feedback on Junior ISA when reaching 18 from r/UKPersonalFinance

If you have a Junior ISA, then be sure to instil good money habits from as young as possible. There’s no guarantee, but if you are happy to take the risk of giving a large cash sum to an 18 year old, then prepare them with financial education.

According to the 2022/23 Young Person’s Index by The London Institute of Banking and Finance, 5.4 million children in the UK lack the critical money skills they’ll need in adulthood.

Can you afford a Junior ISA?

I find it incredibly worrying when people tell me they are putting money aside into a Junior ISA, yet at the same time, they have little or no savings of their own.

Secure your own finances first. There’s no point plugging away at a Junior ISA on one hand and worrying about not having enough to meet your financial goals on the other.

I see endless reports of families struggling with childcare and living costs, such as energy prices rising.

It’s important that before you lock money away, you have thought about your own financial safety net first.

You’ve probably heard it before – 'pay yourself first’ – this term very much applies to all aspects of budgeting, even when it comes to giving to your children.

Build your wealth first.

When is the Junior ISA right?

There are many reasons why a Junior ISA could make good sense.

If, for example, your child is gifted money, you may want to consider putting that into a Junior ISA.

And if you had a Child Trust Fund, then shifting that into a Junior ISA also makes sense, as you will have more choice plus lower fees.

But, if you are thinking of simply opening an account, remember, it should not come at the expense of inflexible finances, sacrificing your own annual tax-free allowances and at the risk that you may want to have more of a say on how they spend the money at 18.