It’s My Money Week – an initiative set out to educate young people to gain the skills, knowledge and confidence in money matters. This is a fantastic initiative, and one that is as relevant for a generation of parents as it is for the children themselves.
As most people will be aware, your children have a number of allowances available to them, the most popular of which are Junior ISAs (or potentially Child Trust Funds for some older children). These provide a fantastic opportunity to both lower your tax bill, and to help with some common long term financial objectives, such as building up a pot to pay for your children’s university fees, or efficiently passing on what may one day be a house deposit.
However, next year, some of the earliest children to benefit from Child Trust Funds will turn 18, and at this point will assume full control of their investments. For us as advisors, this means that unless they formally delegate responsibility for any decisions back to their parents, we will be working directly with a generation of investors who could potentially have some very different priorities to their parents. At this stage we would legally have no choice but to act in line with their instructions.
In practice this rarely happens, as children are generally responsible and are aware that they need to keep up good credit with the ‘bank of mum and dad’, particularly in an age where so few can get on the housing ladder without further help. Even so, if the knowledge that your children are going to one day take their finances into their own hands keeps you up at night, then there is no substitute for beginning their financial education early.
If you educate your children now, then it could avoid the need for complex, potentially expensive solutions such as discretionary trusts or a reluctance to gift directly. Hopefully initiatives like My Money Week will help create a generation of financially savvy 18 year olds who can see the value of staying invested and the compounding of returns, and perhaps reducing the requirement for further gifting! As Albert Einstein once said “Compound interest is the eighth wonder of the world”.
If you would like to discuss any of the areas covered in this article, please don’t hesitate to get in touch.
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