The Power of Saving in Efficient Ways for the Benefit of Children
Within this article, Olivier Rident, Wealth Manager, discusses the benefits of planning and saving for your children’s future.
They may not thank you just yet…
This festive period has got me thinking more than most. As a proud uncle for the second time in 2021, my holiday shopping list had to extend beyond a single page.
We all have family who will shun anything which may come close to falling outside ‘the spirit’ of the holidays. That is why, last month, I was dubbed a ‘grinch’, a ‘killjoy’ (and much worse) when my gifts to the younger generation were smaller than those given by my smug siblings. Sure, a child should have something to open over the holiday period, but I had decided contributions to Junior ISAs would be the bulk of my gift.
The festive purists argued I had finally lost the last fractions of my soul to Finance and Wealth Management. Was I bringing work home with me? Had I taken my preaching to friends and family about the importance of sensible financial planning a step too far?
I reflected on this and decided the answer was ‘no’. Perhaps my (main) gift on the day was a little dull, but I decided to prioritise good old-fashioned delayed gratification. While I cannot comment on the effects of inflation on a cuddly toy, we know from experience (and logic) that the longer your time horizon, the better chance you have of a successful investing experience – and nobody has more time than a 1-year-old.
Many clients come to us knowing that raising children will be expensive and have non-specific goals about helping before and after they fly the nest. Of course, for US citizens living in the UK, an ISA loses a lot of its shine, given the UK tax-break is not recognised across the Atlantic (i.e. ISAs remain taxable in the eyes of the IRS). That said, even for those navigating the complexities of the US and UK authorities simultaneously, there is always an efficient (and structured) way to save for your children - whether that be for education (US citizens might think about 529 plans), adulthood (Junior ISAs), or even your children’s retirement (Junior SIPPs). What’s more, for those who can afford to think in these terms, the tax-free allowances are more generous than you might think.
Children may not immediately thank you for thinking of their long-term future. That said, when they realise sensible investments have turned into a meaningful head start in life, I am sure small(er) gifts over the 2021 holiday period will be long forgotten. With a bit of luck, this head start will also spark their interest in saving for themselves – after all, they will enjoy the beauty of hindsight before they are even out of the gates.
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