collaborative post with Wealthsimple
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I was 14 when I got my first real job. It was a few afternoons each week in my local corner store, selling sweets and crisps and waffle cone icecreams: ‘Would you like nuts or sprinkles on that?’.
It was the first time I really had money of my own, and I used it to buy Bangles records and put a deposit down on my very own home stereo. More than 30 years later, I can still remember the satisfaction of paying the instalments each month, and how rewarding it felt to be doing it all for myself.
Then followed a string of jobs – some pretty good (working in the Toy Warehouse), and some really not (working at a seafood counter wearing a hat shaped like a lobster) – until I left school and found my dream job, working as a journalist.
I was always proud of ‘paying my own way’ and it instilled a healthy respect and appreciation for money. But these days, it’s harder than ever for kids to find their financial footing, and I do worry about how my Generation Z kids (it’s a thing, look it up!) are going to get their own headstart in life.
OH and I sat down a few years ago and decided that a realistic solution would be to set up a Junior ISA (once known as a Child Trust Fund) for them both. If you’re not entirely sure what these are, JISAs are a simple way of investing for your family’s future: they allow you put away up to £4260 each financial year for each child under the age of 18, either via a cash savings account or one that invests in stocks and shares. Alternatively, you can opt to take our your own ISA, which is in your own name and allows you to put away up to £20,000 each tax year.
The big benefit to these is that they’re endorsed and encouraged by the Government, which means – unlike many standard bank accounts – you don’t have to pay any tax on the interest you earn.
The cash account is the ‘safer’ option – what you put in is exactly what you get back, plus the set rate of interest you’ve earned over that time. The stocks and shares account, on the other hand, has more risk attached but should earn you greater rewards. The catch? While your stocks ideally go up in value, netting you much greater financial rewards than cash savings, but they can also go down in value too – meaning, at points, you could have less money in the account than you put in.
It’s an intimidating thought, and one that can put people off investing, but it’s important to remember that stocks and shares are designed to be a long-term investment. As such, they’re supposed to ride out the natural ups and downs of the stock market and over time they’re expected (although no investment can be guaranteed) to provide a much better return.
When the girls were born, OH and I opened a cash Child Trust Fund for them each, but we’re now looking to make it work harder and maximising the returns by transferring the money into an up-to-date stocks and shares JISA. It will be at least eight more years before they can access the funds, which is long enough to weather any temporary dips the market might encounter.
The ultimate goal is that the regular savings we’ve been contributing since they were born – combined with the compounded returns from a (hopefully) buoyant stocks and shares market – will eventually provide them with a leg up on to the property ladder – whether that be a home for themselves or an investment property.
It’s also important to note that while the parents initially set up and manage the Junior ISA, the account and everything in it legally belongs to your child. At the age of 16 they can take over its management, but they will not be able to access any funds until they’re at least 18.
So how do you stop them pulling out every penny on their 18th birthday, and blowing it on champagne and avocados? Well, technically you can’t. Which is why OH and I have made a point of telling the girls about the accounts, making it really clear to them what that money is for, and trusting them to make the right choices when that time comes.
But it’s not just the girls I’m thinking about – I’m self-employed, which means I’m responsible for sorting out my own retirement fund. An ISA is a great option for me for several reasons; firstly, it’s MY individual savings account, so it’s a way of earmarking money just for myself, which is an important consideration if – like many mums – you’ve had to scale back your paid work to be the primary caregiver for your children.
Secondly, I’m not paying tax on my earnings, and thirdly it’s so flexible; I can open a cash ISA to build up a little nest egg, then look to maximise my returns by converting to a stocks and shares ISA. Finally, when retirement age is looming and I decide I want to take fewer risks with my money, I can transfer back to a cash ISA again.
With two school-aged children it’s challenging to find any ‘spare’ money to save, but what I did was go through my accounts and direct debits and cancelled anything I didn’t really absolutely need (old insurance policies, etc), then I set up a new direct debit so that the money I’d cut back on was going into straight into a savings account instead. It’s quite amazing how quickly a few pounds here and there add up.
If you’re still unsure of the best option for you and your family, companies such as Wealthsimple are designed to guide you through the process of investing. They take the scary out of stocks and shares by explaining the process in plain English and offering you three levels of risk – Conservative, Balanced and Growth – so you can find a solution that’s perfect for your comfort level and the returns you’d like to achieve.
Their advisors work with you to create your perfect portfolio, complete with ‘auto-rebalancing’, which means they carefully track and monitor your investments to ensure they’re all performing to your expectations. If they’re not, they’re adjusted (bought and sold) to bring them back into line. You’ll also have expert investment advice on call when you need it, via phone and email.
Invest up to £100,000 and you’ll pay just 0.7% in fees, which is already a fraction of what you’d pay for a traditional advisor. However, as I mentioned earlier, you’ll get their service and expertise for FREE if you use the promotional MUMMY’S LITTLE MONKEY PAGE to sign up.
Even if you can only save a few pounds a week it’s worth setting up an account – you could be pleasantly surprised how easy it is to invest in your family’s future.
• please remember that stocks and shares investments can go down as well as up, and there is always some risk to your capital. Happy saving!
Check out my post: 5 Ways to Make Money without Leaving the Sofa