Living in the moment with your family with a carefree nature is excellent.
But take a minute to consider the future and what you desire for those same people, and you’ll realise that you need to start thinking about how to protect your child’s financial future.
Planning is critical when it comes to protecting your child’s financial future. It may seem too early to think about it, but when you leave things to happen or pan out, you’re not likely to make the best financial decisions.
So, in this blog post, we share the most important steps you can take to ensure your child’s financial future?
1. Start making investments as soon as possible
It is not a smart idea to wait till your children have completed their schooling before you begin investing for their secure future. Planning for your children’s financial future from the moment they are born will assist you in making timely and logical financial decisions.
Early investments provide the advantages of a longer time frame, the ability to withstand bigger risks, and the potential for better returns.
Suppose parents start practising financial planning for their children at a young age. In that case, they will have the opportunity to explore various investment options and evaluate what works best for them rather than just opting for traditional investing techniques such as fixed deposits.
Additionally, the principle of compounding may provide you and your offspring with more significant investment returns.
2. Divide the financial strategy into goals and evaluate it regularly
It’s critical to think about your children’s objectives while making financial plans and to make sure that your plans prioritise them.
There are two sorts of goals: short-term and long-term.
These include any costs that must be paid in the next coming years. Your children’s education, as well as any courses they might choose to pursue as a hobby or interest, are examples of short-term goals.
These do not involve any immediate expenses. Long-term goals such as overseas study are considered when making financial plans for the children.
You can also prepare for your children’s safe financial future by developing a strategy for each objective and making it attainable.
Apart from breaking the plan down into milestones, you must ensure that you check the financial plans regularly to determine if they are progressing as expected.
A periodic assessment of your plans will allow you to modify your strategies to correct any deviations.
3. Bank Accounts in a bank or building society
Bank or building society’s children’s savings account are a good place to start. Unlike other ISAs, these provide immediate access to cash.
These accounts are generally tax-free, but if annual interest is more than £100, you’ll have to pay tax.
You can withdraw money anytime you want: unless the account rules indicate otherwise.
Giving your child responsibility for their money from an early age will help them build a good saving habit. Some accounts include passbooks that allow kids to withdraw money by managing their savings.
It will enable them to learn more about managing their finances.
4. ISAs for juniors
Junior ISAs are tax-free savings accounts for under 18’s.
There are two types of Junior ISAs:
- Cash; and
- Stocks and shares.
Your youngster can assume management of their Junior ISA account at the age of 16, but withdrawal is not allowed until they’re 18.
The 2021/2022 savings limit for a Junior ISA is £9,000.
You can have both a Junior and an Adult ISA throughout these years, doubling the tax-free contributions for two years.
All monies stored within a Junior ISA wrapper are tax-free, just like the adult Isa, so parents don’t have to worry about the ‘£100 rule’ that applies to children’s savings accounts.
Under ISAs, children are unable to withdraw cash. This is advantageous if you want the money to be saved until adulthood. However, it is disadvantageous if you want them to have experience handling their funds.
A Junior ISA is an excellent alternative if you’re confident your youngster will manage money wisely. However, if you’re afraid that once kids reach maturity, they’ll go on a savings binge, your money could be better spent elsewhere.
5. Professional advice
You may have your children’s best interests at heart, but it does not imply you have the necessary expertise to select the best plan for their financial security.
If this is the case, you should obtain financial counsel from a competent and IFA to determine the best investment plan and funds for your children’s goals.
Consider selecting a nominee who can guide your children and manage their finances.
In case of an unexpected event (for example, the death of parents or guardians), a nominee can guide your children. It will offer you peace of mind that your children’s assets will be handled responsibly until they reach adulthood.