Saving & investing for your child or children
The cost of bringing up a child is incredible and current estimates are that it costs around £50,000 for all the food and clothing that a child will require from birth until they're 18. On top of that, there are toys, activities, school equipment and of course, the extortionate fashion accessories that are so essential for the discerning teenager. After all that, there are the costs for setting them up in a job and a home, possibly with university fees and student living costs thrown in as well if they're reluctant to leave full time education. Come to think of it, you might even be asked to fund a year out around the world! How can anyone be expected to provide all that without working round the clock or being drowned in debt?
Enough of the depressing stuff - let's start with the good news: When you have a child, you get free money. OK, the government's effectively giving you back money you've paid them but it's still worth claiming everything you can and being aware of what you're entitled to. There are three main sources:
Clicking on the links will take you to detailed information on the relevant official websites, but I'll try to summarise them anyway:
Nice and simple and available to all. You get around £16.05 a week for your first child and around £10.75 a week for every child thereafter. The benefit is paid until the child reaches 16 or up to age 18 if still in full-time education.
Child Tax Credits
These credits are based on the household income; less than £50,000 a year should mean you can receive £10.45 a week or double that for a baby less than a year old. There were administration problems when it was introduced but these seem to have been solved now, however the application process can be quite time-consuming.
Child Trust Fund (Baby Bonds)
A lump sum of £250 or £500 (depending on household income) given to each child born since September 2002 (inclusive). This will be run by savings and investment companies and friends and family can contribute up to £1,000 per year. These accounts will probably available in 2005 and children can access the fund on reaching 18.
Once you've claimed for all of these, the next step is to make the most of the money you do have, either by saving or investing. How you do this depends on what you have available to invest and how much time you've got.
|Age of child|
|Lump sum||Investment trust/unit trust||Investment trust/unit trust||Savings account||Savings account|
|Regular amount||Investment trust/unit trust||Investment trust/unit trust||Investment trust/unit trust||Savings account|
|Irregular amounts||Savings account||Savings account||Savings account||Savings account|
- Investment trust/unit trust - Investing in the stock market through a fund, possibly in a tax-free ISA. I'd highly recommend an index-tracking fund because it's much cheaper and most professional fund managers don't beat the stock market average anyway. Popular providers include Legal & General (who also do an ethical index tracker), M&G (very cheap) and Virgin.
- Savings account - An account ideally in your child's name, meaning it's tax-free, offering high interest. The account is usually upgraded when they reach certain ages, e.g. cash card, magazine, etc. One we consistently hear good comments about is Nationwide's Smart account.
At this point I should stress that I'm not a financial advisor and this is just my suggestion. I expect many people would disagree with it because we all have different attitudes to risk and different expectations of future reward. One thing that is indisputable, however, is that time is valuable and the earlier you can start saving or investing the better, allowing you to benefit from the wonderful effects of compound interest
. Continue to help your child by teaching them this and other valuable financial lessons
Comments (now closed)
|Thanks for pointing out the broken link, Richard. It's fixed now.|
|DadCafe||21 June 2004|
|At last a page that lays things out in black and white. the tax office and social services in my home town haven't been any help at all. Well done!|
|Scott||16 June 2004|
|The link to the Nationwide savings account doesnt work any more|
|Richard Warriner||16 June 2004|