The Kids aren’t alright
A perfect financial storm is faced by the children of today as a result of sky-high property prices, the cost of further education, lower employer contributions to pensions and likely lower investment returns than in the past.
Parents and grandparents have been providing a financial boost for their offspring for many generations but the need has never been so great as today.
The ‘Baby Boomer’ generation has enjoyed extraordinary good fortune:
- University tuition fees were nil, or negligible by today’s standards.
- The average property price used to be around 3 times average earnings, now it is over 9 in London.
- Employers used to contribute up to 25% of salaries to provide pensions linked to final salaries and often index linked.
- With 10 year bond yields less than 2% in the UK (negative in Germany and a few other countries) it is very unlikely that the investment returns achieved over the last 25 years can be repeated.
We think the JISA could be improved considerably…
To even up things between the generations grandparents need to be doing their utmost financially. The obvious product is the Junior ISA – it usually has no charges and cannot be accessed until 18. Unless the timescale is less than 5 years we advocate an adventurous investment strategy because stockmarket volatility is less of a concern over the longer term, especially if regular contributions are being made.
Much as we like some aspects of the JISA, we think it could be improved considerably. Some parents and grandparents might be concerned about offering full access at age 18. We think a provision to restrict access until age 25 if preferred would be desirable. We also think it should be made easy for children to make small donations themselves and then to be kept informed about performance. There’s no better way to learn about the ups and downs of the stockmarket than to see your own savings fluctuate in value.
Finally, we think the Government should look to extend the proposed Lifetime ISA, with 25% top-up, to JISAs opened prior to a child’s 5th birthday and not accessed until 25.
You can find out more about JISAs here.
You can download our free Investing for Children Guide.