Five financial gifts for children at Christmas
With Christmas fast approaching, many parents will be busily trying to fulfill their children’s wish lists to Santa.
But parents may want to do something more than simply add to the pile of toys in their children’s’ bedrooms.
Adrian Lowcock, Head of Personal Investing, Willis Owen says: “Whilst it is great to see the excitement on Christmas Day, sadly the novelty soon wears off from many presents.
“A financial gift is unlikely to have the same response on the day but unlike other presents, these are gifts that are likely to be more enduring and could be worth much more in the future.”
But with so many investments out there at Christmas, it can be hard to know what exactly to buy for children so that they can have a financial boost over the long term.
Below, we review some of the most popular financial gifts and why you should consider buying them for children.
Gold & Silver coins
As an investment, Gold is difficult to value as it does not produce anything nor does it generate an income, but it continues to be in demand by investors in times of crisis.
Gold and Silver coins provide a combination of a valuable investment whilst giving you something to appreciate and admire. There are many coins to choose from ranging in age and value, with some more collectable than others. There are even a range of coins representing children’s characters – this year the Royal Mint issued its second “The Snowman” collection.
As with any investment it pays to do your homework about what might be a good collectible to buy for the long term.
Putting some money into an ISA might not be at the top of everyone’s letter to Santa, but in years to come that money may have grown into a significant sum. A parent or guardian can set up a Junior ISA, but anyone can contribute up to the annual allowance of £4,368.
The money can be placed in cash or invested. A Junior ISA taken out when a child is born would have more than doubled in value by the time they turn 18, assuming it grows at 5% per annum. That means it could be worth over £10,500. Additionally, this helps to encourage an interest in savings and investing at an early age which is a habit that is better developed sooner rather than later.
Anyone over 16 can buy Premium Bonds in their own name; however, relatives can also buy them on behalf of under-16s. The minimum purchase is £25 worth of bonds with a maximum holding of £50,000. Premium bond holders get put in a monthly prize draw, and every month each bond holder has a chance of receiving a tax-free prize of between £25 and £1 million. The odds aren’t great – the chances of winning anything are 24,500 to 1, and 41 million to 1 for the top prize of £1m.
The annual prize fund is based on an interest rate of 1.4% tax-free. However, bear in mind that any prizes are down to luck and investors may not win anything.
Premium bonds are backed by the Government so there is an implicit guarantee of protection for investor’s capital. Visit National Savings and Investments for more information.
Cash savings accounts
Dedicated children’s savings accounts often boast the most generous interest rates on the High Street and online.
For example, Nationwide offers an instant access account for children up to the age of 15 which pays 3%, and can be accessed from as little as £1. The interest is paid on the annual anniversary, although it is worth noting this particular one is a linked account so has eligibility terms attached.
These accounts hold money in a child’s name and can be good way to encourage children to save.
If the Junior ISA allowance has been met, parents with a long-term view may also wish to consider a Junior SIPP. Up to £2,880 can be contributed into a junior SIPP and this is increased by a 20% tax relief contribution from the taxman to £3,600. The investment grows free of income and tax and would only be accessible when they turn 57 (from 2028).
At 5% growth, an initial contribution of £3,600 would be worth over £58,000 in 57 years’ time. Given the long-term nature of the Junior SIPP it is worth considering investing in funds which offer diversification and do not require constant monitoring.