Five financial gifts for children at Christmas
With Christmas fast approaching, many parents will be busily trying to fulfil 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 this year.
Adrian Lowcock, Head of Personal Investing at 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 you can purchase 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’s Christmas collection includes old favourites such as Winnnie the Pooh and Beatrix Potter to new classics The Gruffalo and Wallace & Gromit.
As with any investment it pays to do your homework about what might be a good collectable 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 can grow into a significant sum. A parent or guardian can set up a Junior ISA, but anyone can contribute up to the annual allowance of GBP9,000.
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 cent per annum. That means a GBP9,000 investment today could be worth over GBP21,500 by the time they are an adult. 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 GBP25 worth of bonds with a maximum of GBP50,000. 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 GBP25 and GBP1 million. The odds aren’t great - the chances of winning anything are 34,500 to 1, and 49.48 billion to 1 for the top prize of GBP1m.
The annual prize fund is based on an interest rate of 1 per cent 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, Barclays offers an instant access account for children up to the age of 15 which pays 1.5 per cent, and can be accessed from as little as GBP1. The interest is paid yearly. There are better headline rates available but it is important to read the terms before committing to them. These accounts hold money in a child's name and can be a 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 GBP2,880 can be contributed into a junior SIPP and this is increased by a 20 per cent tax relief contribution from the taxman to GBP3,600. The investment grows free of income and tax and would only be accessible when they turn 57 (from 2028).
At 5 per cent growth, an initial contribution of GBP3,600 would be worth over GBP58,000 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.