Every parent dreams of a prosperous future for their children, aiming to provide
them with every possible advantage. Amongst other important aspects, starting
early on financial planning is important for your child’s security.
From savings accounts specially designed for young ones to smart financial
habits you can adopt yourself, multiple methods can help you set up a solid
financial foundation for your kids.
To help make the process easier, we will walk you through seven practical
strategies to help secure your children’s financial future. While there’s no
universal solution that fits every family, the guidance provided here will give you
a glimpse into the basics, that you can then add on to and customise to suit your
family’s needs.
Remember, the effort you put in today is a solid investment in your child’s
tomorrow. Making them financially secure and responsible is a precious lesson
that you need to impart and instil as a parent.
Let’s dive in to see how you can do this without getting too stuck in
technicalities!
Teach Them Essential Financial Lessons
Giving your children basic training in finance prepares them for success in the
future. You must teach them about common finance terms like credit score,
budgeting, power of attorney, etc. Additionally, emphasise the importance of
savings or avoiding unnecessary expenses. Explore the topic of taxes and show
how they can support public services. Furthermore, warn them about the
dangers of interest on debt, especially credit card debt. Make sure whatever you
are teaching is appropriate for their age and understanding.
Open a Savings Account for Them
A wise step towards securing your child’s financial future is opening a savings
account for them. The account is simple to set up and will allow you to control
and build a nest egg for your children from an early age. The savings can be
started with a one-time payment and gradually increased with gifts and
allowances. Teaching them the habit of saving from a young age instils valuable
lessons about money management.
Additionally, having their own savings account can aid in building a sense of
responsibility and independence in your child. Of course, there are legal age
limits that you can set along with credit limits and thresholds so they know they
are not in control of their accounts just yet.
Secure Their Well-Being in Case of Unforeseen Events
Securing your children’s future is not a choice, it is a necessity. Make a will for
yourself and your spouse and don’t forget to modify it if your situation changes.
Another important aspect of estate planning is that it specifies how your assets
will be distributed in the event of your death. If this seems overwhelming to do
on your own, consulting a financial adviser will be helpful. Making preparations
now ensures your kids will be financially comfortable in the future.
Offer Your Pension as a Long long-term Investment
Consider offering your pension as a long-term investment for your child’s
financial security. The tax benefits make it an appealing option for saving over
time. You can make annual contributions of up to £2,880 on their behalf, from
which the government will deduct basic-rate tax. Remember that this is an
extremely long-term investment as the minimum pension age is set to increase
from 55 to 57 in 2028.
Besides this, owning stocks and shares could result in significant profit over
time. It’ll provide your child with invaluable benefits especially when it comes to
their pension plans for themselves.
Reserve a Tax-Free Sum for Them
Another practical tip that will secure your children’s financial future is to reserve
a tax-free sum for them. Set up a Junior ISA (JISA) in their name, which will
automatically change to a conventional ISA when they turn eighteen. Investing
in cash or stocks and shares is possible with this account, and all profits are
spared from capital gains and income taxes. Even with a modest growth rate, if
you max out the JISA payment every year, it could add up to over £210,000 by
the time they come of age.
Give Them Money in the Form of Gifts
Giving your children money as a gift is a smart idea as it enables you to build a
stable financial future for them without worrying about taxes or state
considerations. You are eligible for an annual gift allowance of £3,000 per year,
which is free from inheritance tax (IHT). Remember, this is not per recipient, but
total. If your income exceeds your expenses you can give more without facing
IHT. Additionally, should you live for seven years after gifting, any sums over
£3,000 are not deducted from your estate worth. Consider how you will give
expensive gifts to your kids as it will impact your overall financial planning. This
one will require a bit of thought and planning.
Seeking Financial Assistance From Loved Ones
Often, grandparents want to know how they can financially assist their
grandkids. They can help in varying degrees, depending on the assets you have
available. Some of the choices discussed above are suitable for grandparents as well as parents. However, there are certain limitations, for example, while
anyone can fund a Junior ISA (JISA), only parents or legal guardians are
authorised to set up one.
Consulting an expert here will allow you to fully understand all the available
avenues that’ll help you in securing the future of your children,
To Wrap It Up
Securing your child’s financial future is one of the most important responsibilities
you shoulder as a parent. By planning and taking proactive steps today, you can
help your children have a stable future.
This is a collaboration post