Solihull Times caught up with experienced financial planner Glenn Clarke to find out how saving a nest egg can not only give children a great start in life, but it can also help the financial well-being of the whole family.
They say you can’t put a price on family, but just how much does it cost to raise a child? Raising a child from birth to 18 in 2022, including household and childcare costs, stood at £157,562 for a couple and £208,735 for a lone parent*. Children are expensive but seeing them grow and achieve their ambitions is often our greatest pleasure.
With the general costs a child brings, as well as the increased cost of living, many parents feel squeezed to make ends meet, let alone think about funding future costs like a car, university, or a deposit for a house. But building a nest egg for your kids doesn’t need to break the bank and could make a huge difference to their future, and their financial wellbeing.
Solihull Times caught up with Glenn Clarke, who runs an Associate Partner Practice at St James Place at Blythe Valley Park in Solihull, to find out the options.
“I work closely with my clients to help them identify and prioritise their financial objectives – achieving positive outcomes for my clients and their families through tailored financial solutions and friendly, face-to-face advice.”
Recent research by St. James’s Place more than two-thirds (69%)* of clients expect to provide some form of financial support for their family at some point. Parents, grandparents, and other family members are often keen to help children buy their first home or start their own business.
Adds Glenn: “Start saving little and often – and early if you don’t want it to affect your standard of living when you are older. Allocating your money into different pots can really help create discipline.”
As your child grows, so do their expenses – from driving lessons to tuition fees to the deposit for their first home. A tax-friendly Junior Individual Savings Account (JISA) is a popular option said Glenn.
“The ISAs can be flexible, simple, family-friendly ways to save, making them a good entry point for young savers. And any growth is tax-free. Anyone can pay into the JISA – parents, grandparents, godparents, friends or other family members, although only parents and legal guardians can actually set one up. Like all ISAs, you won’t pay Capital Gains Tax or Income Tax on any growth.
There are two types of JISA; a Junior Cash ISA and a Junior Stocks and Shares ISA. You can pay up to £9,000 in the 2023/24 tax year into a JISA. Money held in a JISA is locked in until the child reaches 18, after which they could convert it into an adult ISA and continue to enjoy the same tax advantages.”
“Start saving little and often – and early if you don’t want it to affect your standard of living when you are older. Allocating your money into different pots can really help create discipline.”
Another option could be a children’s pension fund. Starting a pension for a child while they are still decades away from their retirement, might sound like an odd thing to do, but can make a big difference. Even investing small amounts over decades could grow into a substantial pot over time. As a rule, you should put away as much as you feel comfortable with – even £100 a month will make a difference.
“Children can have a pension as soon as they are born. Setting one up can bring significant tax advantages. You can put up to £2,880 a year into their pension, and the 20% pension tax relief bumps this up to £3,600.”
Just like JISAs, only a parent or legal guardian can set up a child pension, but anyone can contribute. Saving into a child pension can also help reduce your own Inheritance Tax (IHT) liability by bringing down the size of your estate. Payments from grandparents, for example, may be covered by the annual £,000 tax-free gifting allowance or the exemption for regular payments if made out of surplus income.
“With Junior ISAs and children’s pensions the money is locked away until they’re older. It has years to benefit from compound interest – and to ride out any bumps in the road, such as rises and falls in the stock market, is a balance for you to decide on with your adviser,” he said.
A question often asked is whether children pay income tax on their savings. “Technically, yes,” said Glenn. “Children are liable to pay tax on savings, as they have the same income tax allowance as adults. It’s uncommon, though, as children generally don’t earn money, and their savings don’t tend to earn enough interest to exceed any tax thresholds.”
“For the record, children are entitled to a tax-free personal allowance of £12,570 in the 2023/24 tax year – the same as adults.
If this income is from savings interest, there are extra tax-free allowances in addition to the personal allowance, allowing a child to potentially earn up to £18,570 tax-free in the 2023/24 tax year. This could be increased if you include the dividend allowance which is currently £1,000.”
*Sources:
- Moneyfarm, 2023
- Intergenerational Wealth Transfer Survey, SJP and The Wisdom Council, 2023, survey size 887
Creating the future you want for your family
Talking to a financial adviser will help you decide on the smartest ways to save for your children. If you’d like to talk family finances and saving with a financial adviser, you can get in touch with Glenn today on the details below. You can also speak to Glenn about investment and retirement planning.
The value of an investment with St. James’s Place will be directly linked to the performance of the funds you select, and the value can therefore go down as well as up. You may get back less than you invested.
An investment placed into a Stocks & Shares ISA will not provide the same security of capital associated with a Cash ISA.
The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances. Please note that St. James Place does not offer Cash ISAs.
Associate Partner Practice. St James Place
Glenn Clarke
DipPFS Certs CII (MP & ER)
07966 763214
glenn.clarke@sjpp.co.uk
Principal www.glennclarkefinancialplanning.co.uk
Glenn Clarke Financial Planning is an Appointed Representative of and represents only St. James’s Place Wealth Management plc (which is authorised and regulated by the Financial Conduct Authority) for the purpose of advising solely on the group’s wealth management products and services, more details of which are set out on the group’s website www.sjp.co.uk/products. The ‘St. James’s Place Partnership’ and the titles ‘Partner’ and ‘Partner Practice’ are marketing terms used to describe St. James’s Place representatives.
SJP Approval 06/12/2023