In celebration of National Children’s Day on 16th May 2021 we’ve joined forces with the founders of KidStart and Beanstalk, Cem and Julian. With years of experience in helping families save for their kids’ futures, they share some of their tips.
Check out our IGTV from Sunday 16 May 2021 where Kidstart will have answers to all your questions about children’s savings, including how Junior ISAs work, how to encourage good saving habits at an early age and the best way to save for your child's future.
Let us quickly introduce ourselves. We joined forces to launch KidStart 12 years ago: it’s a free shopping club for parents that lets you earn money back on your online shopping, the money you earn is then used to top up your child’s savings account. We work with ‘000s of retailers – including JoJo Maman Bébé – and have helped parents collectively save millions for their children.
As we were building KidStart, and being parents ourselves, we could see how confusing the child’s savings market was: almost every new parent we talk to wants to put something aside for their children to help “launch” them into adult life, but very few do. So we decided to use our experience to develop our own child / family savings app which we have called Beanstalk. Based around a simple Junior ISA and ISA and with loads of unique features, it is a revolutionary new way for families, whatever their means, to work together to build a lump sum for their children’s future.
It is every parent’s natural instinct to want to support their child but it can be difficult to know what the best way is. With the increasing costs of living, the challenge of getting on the property ladder and university fees, even the smallest amount could give them a helping hand as they reach adulthood. Putting a little money aside over a long time can help build a nice lump sum if the value rises over time.
Here are our top five tips to help you start saving for your child’s future:
1. Cash v Stocks & Shares
When looking to save for their future, many people instinctively choose a savings account as they don’t want to risk losing money. This makes sense but the right decision is a bit more complicated, particularly if you are putting money away for a long time such as with a Junior ISA or a pension.
Junior Individual Savings Accounts - Junior ISAs / JISAs - are savings and/or investment accounts specifically for saving for children. Money in a JISA belongs to the child and, except for exceptional circumstances, the child cannot access the money until they are 18. Any interest or investment income is tax free and there is no capital gains tax to be paid on increases in value of any investment.
There are two types of Junior ISA: “cash” and “stocks & shares”.
Although cash JISAs give certainty (you know that the savings will grow by the interest rate), one thing to think about is the effect of the inflation rate on the value of your child’s savings. If inflation (the general increase in cost each year of goods and services) is higher than the interest rate, then despite the fact your savings have grown, they will be able to buy less with the money than they could at the start.
Unlike saving where your returns are dependent on the interest rate, returns from investing depend on how well the investments do. There is of course a risk that you could end up with less than you put in but evidence suggests that, over the long term stocks and shares tend to outperform cash as the returns can compensate for the ups and downs.
Our app, Beanstalk, is a stocks & shares JISA and ISA but offers you flexibility in that you can choose to split your contributions between a shares fund, which aims to track the performance of global stock markets, and a cash fund, which aims to match money market rates.
2. Does it fit your lifestyle?
When looking at opening an account for your child, always consider the commitment required for that account. Do you have to commit to monthly contributions or a large one-off top up? What are its costs? Are these requirements sustainable for you?
Opening a Junior ISA can seem like a big commitment, especially if the provider insists that you have to make a regular contribution every month. What if your circumstances change? You might need flexibility.
Beanstalk lets you open an account without making a contribution and then top up when and if you want to. And you can even contribute in multiple ways, including round up your purchases, a simple one-off / regular top-up process and free money back on your shopping.
3. How easy is it to manage?
From speaking to other parents, we saw how difficult some providers make it for parents to manage their child’s savings: requiring trips to the bank to open or top up the account or only sending out occasional statements. It’s easy to see why many parents frequently give up when looking for an account for their children.
There is a new breed of app based Junior ISAs, including Beanstalk, which massively simplify the process of opening and managing accounts. It was a priority for us to make Beanstalk easy-to-use; through our app you can open accounts for yourself and your kids in seconds and manage all of your savings from one login.
4. Make it a family affair
While only the child’s parent or legal guardian can open a Junior ISA, it doesn’t mean they’re the only ones who want to make contributions. Our experience is that grandparents in particular want to help out whether it’s a little gift on birthdays or at Christmas, giving an occasional larger sum or setting up regular contributions.
Not all providers make it easy for family and friends to pay money in but, with Beanstalk, parents can use the app to invite grandparents, other family members and friends to link to their children. When linked, they can then easily send gifts and messages through the app straight into the child’s account (so no worries about sending the money to the parents and them “forgetting” to pass it on!) Parents can see who has contributed, and through their own app, donors can see how much they have helped out.
5. Slow and steady wins the race
When it comes to saving for your child, think of it as being for the long term: you don’t have to worry about being able to put away huge amounts in one go. Saving little and often is a great way of building a nest egg for your child as time is on your side: if the value grows at 5% per year, then £10 put in when a child is born would be worth nearly £25 when they turn 18.
With Beanstalk we have some handy tools to help you do this, including earning money back with KidStart and our round ups feature where you can invest the change from your purchases. You’ll be surprised how quickly small amounts can add up.
Please note: as with any investment, the value can go down as well as up. Past performance is no indicator of future performance and the tax treatment of ISAs depends on your individual circumstances and may be subject to change in the future . Beanstalk is a trading name of KidStart Limited, authorised & regulated by the Financial Conduct Authority (# 473606).
Check out our IGTV from Sunday 16th May 2021 where Kidstart will have answers to all your questions about children’s savings, including which accounts have the best interest rates, how to encourage good saving habits at an early age and the best way to save for school fees.