Get 'Em While They're Young

We're strong advocates of teaching children the value of investing and Junior ISAs could be a great tool for doing so

Holly Cook 15 February, 2011 | 6:18PM
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Saving and investing on a child's behalf ranks fairly high on individuals' investing to do lists, particularly those of parents and grandparents. To help facilitate this, the government is planning to replicate the ISA model and roll out new investment products known as 'Junior ISAs' that will replace the Child Trust Fund scheme and hopefully provide a popular way to save for your children's future. But why restrict your child or grandchild's role to that of recipient? The earlier you engage them in financial decisions and teach them about the importance of saving for the future--whether it be milestone goals such as a deposit for a house or even retirement, or more achievable goals such as a dream holiday or birthday present--the more effective they're likely to be in managing their finances and investments later in life.

Making the Most of 'Junior ISAs'
There are a number of important differences between the CTF and the Junior ISA regimes, and some key details are still to be confirmed, but initial reactions to the government's plans are generally positive.

Junior ISAs will simply be a tax-free wrapper in the same way as an 'adult' ISA. Though the maximum annual allowance is yet to be announced, Junior ISAs should provide an additional avenue for saving on top of the £10,000+ that each parent can currently save per year. Of the details that have been unveiled so far, we know that Junior ISAs should come into existence this autumn and that the child won’t be able to access the funds until they are 18--in time for paying those ever-increasing university fees. Most funds, both OEICs and closed-end/investment trusts, are now ISA-eligible and many allow regular monthly payments of as little as £50, enabling you to take advantage not only of pound-cost averaging but also of compound returns.

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About Author

Holly Cook

Holly Cook  is Manager, Morningstar EMEA Websites