Best way to save for our child? Let me sleep on it

Jamie Jenkins

If you read my last blog post, you’ll know that a new human recently arrived in our household. Time flies, and Arlo’s past four months now. He remains healthy and full of smiles, thankfully. He’s doubled his weight and is now pushing a stone. Apparently that’s ok.

And I measured him the other day – admittedly while he was wriggling – and I reckon he’s around two-feet tall. I have no particular reference point for his height, but that sounds about right to me. My wife challenges me on the use of the word ‘height’, which she suggests should be ‘length.’ I take the point, but it seems arbitrary to consider him a ‘long’ person on the basis that he can’t yet stand on his own. I think he’s ‘tall’.

So that’s all good.

But he continues to show strong resistance to night-time sleeping. We’re trying everything short of ‘controlled crying’ and we are making progress, but two steps forward and one back (and sometimes the reverse). Fingers crossed, because we’re exhausted.

I take my hat off to anyone with twins, and parents with triplets are presumably superheroes, about which Hollywood should make films.

In preparation for his breakthrough, we’ve turned our attention to his room, which is now taking shape. Aside from a minor dispute between his parents on the style of furniture, we have pretty much everything we need for him to start the next chapter of his life in his own room.

Room to grow

Confident that we’ll crack this, we started thinking much further ahead to when he’ll need his own place. It seems unlikely that first-time buyers will have a much easier time of things any time soon. Either way, it will certainly help him to have some money for a deposit.

Saving for the future is a good thing to do. The most obvious savings product for us to consider is a Junior ISA, given it’s pretty much purpose-built for parents to establish savings for their children. The basic premise is that you can save up to £4,260 (2018/19 tax year) each year as part of your overall ISA allowance, and the Junior ISA then converts at age 18 to a regular ISA in your child’s name.

Unlike some of its predecessors, it doesn’t benefit from any particular government top up, but like other ISAs, it does enjoy tax-efficient growth and, ultimately, tax-free withdrawals. Cash rates also tend to be better than regular ISAs as the money is likely to be tied up for longer. And there are plenty of options to invest in stocks and shares, just like a regular ISA.

The interesting thing I found in my research is not so much the product, but the debate parents have about the uncertainty of making a decision now about gifting your child money at age 18. As one online comment suggested, you could find yourself gifting your teenage son or daughter £10,000s the same week you discover they’ve established a gambling habit.

This is an interesting dilemma, as the product itself doesn’t make any provision for the parents to hold the money back. It’s theirs to do with whatever they want as of their 18th birthday – whether that’s a house deposit or a punt on the 2.30 at Haydock.

However, you have to maintain a fairly pessimistic view to avoid saving for your child’s adult years on the simple premise that they might have already gone off the rails.

The alternative is you can of course simply save for their future in your own ISA – or indeed many other savings vehicles – but the fact that the money won’t be physically segregated means you will of course have to rely on your own discipline, as opposed to theirs! A different dilemma would present itself if you have your own call on the money in the years leading up to your child’s 18th birthday.

For older parents (yes, like me, now in my late 40s), there is also a consideration around the amount that can be gifted under IHT rules. Anything above £3,000 (2018/19 tax year) could be subject to tax if you die within seven years.

It’s an interesting debate, and one we haven’t quite resolved yet. As far as I’m concerned, he needs to start by sleeping in his own room, and then we can talk savings!

The views expressed here are those of the author, not Standard Life.

Your pension is an investment – its value can go down or up and may be worth less than was paid in. This article shouldn’t be taken as financial advice and is based on our understanding in May 2018.