Understanding your options for saving for your child’s future

November 09, 2018
Taryn Lee-Johnston

As the old joke goes – parents keep photos in their wallets because it fills up the space where their cash used to be.  All joking aside, one of the many shocks of new parenthood is discovering that children typically need more money than sleep.  Sadly nobody has invented a method to save up sleep for later use, but you can save up money for your child’s future and here are some tips on how to do so.

Start as early as possible

Hopefully you will already have some general savings tucked away.  As soon as you even start thinking about trying for a baby, you will want to do everything you can to maximise these, even if you have no plans to start a family for some years.  Time flies and children are expensive.  Besides which, if you change your mind, or come into an unexpected windfall, you can always put your excess funds to an alternative use.

Leave most of your baby buying until after the birth

This may seem like an odd piece of advice, given that we emphasised the usefulness of starting your savings early.  The point here is that new parents, especially first-time parents, can find themselves buying all sorts of “essential” items only to discover later that actually they didn’t need them at all.  Your basic essentials are: a place for your baby to sleep (and appropriate bedding); a pram; (usually) a car carrier; feeding equipment; a stash of clothes and nappies; basic toiletries and a few first-aid items.  That’s really it, although you could add a baby monitor to the list.  They’re not technically essential but they’re so useful many people want one and it can be reassuring to know that it’s ready for the baby to come home.  These are worth shopping for in advance, especially if you’re on a budget since it gives you the most chance of picking up a bargain either in a shop (real-world or online) or on the preloved market.  For everything else, wait until there is a clear sign that you need it before you part with your cash for it.

Look for child-friendly savings accounts

Junior ISAs are a tax-efficient way to save for your child’s future, however, there are a couple of points you need to understand about them.  The first point is that once money has been paid into them, it remains locked away until your child reaches the age of 18.  The second is that once your child reaches the age of 18, the money is theirs to spend as they please and legally there is absolutely nothing you can do about it if they choose to spend it on a round-the-world holiday rather than going to university.  An alternative would be to use standard savings accounts and accept the tax liability as the price of a greater degree of control.  You could put one account in your child’s name to give them ownership of some of their savings and keep another account in your own name, which you aim to grow on their behalf.

Give your child financial lessons from an early age

Managing your finances is essentially the art and science of balancing living in the present with preparing for the future.  By teaching your child about money early and steadily increasing the amount of responsibility they have for their own financial standing, you are not only giving them an excellent preparation for adult life, but you are also protecting yourself against having to deal with unreasonable financial demands, which could potentially impact on your own financial (and mental) health both now and in the future.

 

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