As parents, we all want to set our children up for a secure financial future. While saving money in a traditional bank account is common, investing can offer much greater long-term benefits. Teaching children about money from an early age can help them develop positive financial habits and set them on the path to becoming successful investors.
At Cleveden Park Wealth, we believe it’s never too early to start investing for your child. In this blog, we’ll explore why investing may be a better option than saving, how to invest for your child, and practical ways to get them engaged in managing their money.
Should You Save or Invest for Your Child?
Many parents automatically think of cash savings when putting money aside for their children. While savings accounts and Junior Cash ISAs are useful for short-term financial goals, investing could be a more effective strategy for long-term growth.
Over a period of five years or more, investments historically tend to outperform cash. In fact, research shows that in 91% of 10-year periods, investments in shares have delivered better returns than holding cash.
Children have one major financial advantage—time. The longer their money is invested, the more opportunity it has to grow, benefiting from compound interest and market returns.
However, it’s important to remember that unlike cash savings, investments can go up and down in value. A well-diversified investment approach can help mitigate risks over time.
How to Start Investing for Your Child
A Junior Stocks & Shares ISA is one of the most effective ways to invest for your child’s future. This tax-efficient investment account allows parents and guardians to contribute up to £9,000 per year (2024/25 tax year), and the money grows free from capital gains tax and income tax.
When your child turns 18, they’ll gain full control of the ISA, which could provide a substantial boost towards a first home deposit, university costs, or a financial head start in adulthood.
Some parents worry about their child having access to a lump sum at 18. However, recent data suggests that many young investors choose to keep their money invested rather than spending it immediately. By introducing financial education early, parents can help their children develop good investment habits.
5 Tips to Teach Your Child About Investing
Giving your child a solid financial foundation can help them become confident investors in the future. Here are five ways to involve them in the process:
1. Talk About Money Regularly
Make money a normal conversation in your household. Explain everyday financial transactions, such as buying groceries or paying bills, to help children understand where money comes from and how it works.
Since most payments are now contactless or digital, showing your child your bank account or receipts can help make money feel more tangible.
2. Get Them Involved in Their Investments
Let your child know they already are an investor. Talk to them about their Junior ISA and the companies they’re indirectly invested in. For example, if they love a certain brand of trainers or video games, explain that they might own a small part of that company through their investments.
Building this awareness early can help them feel comfortable with investing when they gain full control of their money at 18.
3. Make Investing Fun & Easy to Understand
Children can gradually build their investment knowledge over time. One way to make it interesting is by pointing out well-known brands in their portfolio—perhaps their favourite clothing company or streaming service.
A great way to explain diversification is through the classic saying: “Don’t put all your eggs in one basket.” Discuss why spreading money across different investments helps reduce risk.
4. Involve Them in Decisions
As your child gets older, encourage them to take part in simple investment decisions. You might ask them what brands they’d like to own and why, then discuss how investment decisions are made.
Some parents even allow children to choose a small percentage of their portfolio, giving them hands-on experience while ensuring they learn about risk management.
5. Teach Them About Long-Term Growth
Junior ISAs are designed for long-term investment, and the benefits of patience and compound growth are invaluable lessons for young investors.
Review your child’s portfolio with them every six months or once a year. This helps them see short-term market fluctuations and understand how investing over time leads to growth.
Additionally, teaching children that wealth isn’t about what you spend, but what you save and invest, is an important mindset shift—especially in today’s world of social media influence.
Planning for Your Child’s Future
Aside from a Junior ISA, there are other investment options for children, including a Junior SIPP (Self-Invested Personal Pension). While your child won’t be able to access the money until later in life, the tax advantages and long-term growth potential make it an attractive option.
At Cleveden Park Wealth, we’re here to help you create a financial plan that secures your child’s future. Whether you’re looking for investment advice, help with tax-efficient savings, or guidance on estate planning, our expert team can support you every step of the way.
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