Published at 14:07, Friday, 06 July 2012

When our children eventually fly out from beneath our wings, they are likely to start their independent lives with bills or student debt.

As parents, it’s important for us to encourage our children into a saving habit early on and, if possible, ensure they have a “nest egg” for the costs that lie ahead of them.

Starting out is easy. A simple savings account will allow your child to pay in their pocket money or birthday money and watch their savings grow.

Setting a goal is important. Whether it is to buy the latest computer game, a new toy or to have some money to go on holiday with, your child will need something to save for to keep their interest levels up.

Most banks or building societies offer specific children’s accounts which usually have a good rate of interest and often come with a free gift designed to stimulate the child’s interest in saving.

One way of starting a nest egg is with a Junior ISA. Those children who do not have a Child Trust Fund can have a Junior ISA opened on their behalf.

The account belongs to the child and can’t be touched until they turn 18, which means that children have a fund with at least some money in it to start their adult life.

The advantage of a Junior ISA is that interest and growth are tax-free, and parents, relatives or friends, can top up the fund with a total contribution of £3,600 each year until the child is 18.

Once the child reaches the age of 18, the account matures and he or she can withdraw the money. If the child wishes to leave the money invested, the amount saved up can continue to appreciate by being rolled over into a normal adult ISA.

Once a child turns 16 they can have their own cash individual savings account (ISA), although they can’t have a stocks and shares ISA until they turn 18. You can save up to £5,680 a year in a cash ISA, tax-free.

Parents can help their children by starting a savings plan and putting a little aside each month.

This can either be in interest based investments or stock market-linked investments. Statistics show that over time, stock market-linked investments perform better than cash-based accounts but they are not ideal if you will require access to your money in the short term.

Of course you may see temporary dips in the value of the account, but you can afford to ignore these if you are saving over an extended term, such as for a decade or so in the run-up to the child’s 18th or 21st birthday, as there will be time for recovery in the event of a downturn.

For more details on the Cumberland’s Young Saver accounts and the Junior ISA, visit www.cumberland.co.uk or call into your local branch.

This article should not be relied upon when making investment decisions. Always obtain financial advice.

Published by http://www.cumberlandnews.co.uk