12 November 2019

Give the gift of future presents

6 min read

 
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Becky O'Connor

Personal Finance Specialist

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  • £137.50 per child is the average spend among UK parents, according to research (see notes to editors)
  • Save the equivalent of this every year and give the gift of £2,824 in savings at 18
  • Starting at age 8 instead would yield £1,477 at age 18
  • Set aside £25 a month in an ISA for 18 years and give the gift of £12,002 when your baby reaches 18
  • Put the minimum £25 a month in a Junior SIPP for your child from 0 to 18 and they’ll have £147,798 at age 60 in their pot*
  • A range of savings and investment options suitable for children, from Junior SIPPs to premium bonds
  •  Other good money ‘gifts’ this Christmas include their own current account,  spending card, savings account, a book about money or potentially valuable rare coins or artefacts
  • Deferred gifts of future value could help pay for university , driving lessons or go towards a first home

Parents who face the annual endurance test of present-buying over the coming weeks could consider a more rewarding endeavour over the long term, by giving “the gift of future presents” to children.

The average amount that parents spend per child on Christmas presents is around £137.50*, according to research.

If parents, grandparents or other relatives choose this year to save the equivalent of this amount for their children every year through regular monthly deposits of £11.45, children could have a bigger gift to play with of £2,824 by the time they reach adulthood.

Those who can up their contribution to their children’s long term savings pot to £25 a month could invest the money instead. Investing £25 a month, assuming an average annual return of 8 per cent (see notes to editors), would generate a pot of £12,002 after 18 years in an ISA (either a junior ISA or using your own stocks and shares ISA allowance).

Or for a true lesson in ‘deferred gratification’, £25 a month in a Junior SIPP for 18 years will boost their retirement savings by a whopping £147,798, when they reach 60.

Becky O’Connor, personal finance specialist at Royal London, said:

“It might seem Scrooge-like to save for rather than spend on your children, but putting money into long-term savings is truly far more generous than things that come in gift wrap over time.

“Even if your children don’t realise it now, they’ll appreciate these ‘future presents’ when they hit adulthood; for driving lessons, help towards university maintenance costs, or home ownership dreams.

“For parents who can afford to put a bit extra aside each month into their children’s long term savings, Junior SIPPs and Stocks and Shares ISA investments can yield enough to pay for some big outgoings, when they are older.

“If you tell them about where the money is going and show them the statements every year, this can be a good lesson in deferred gratification.”

Where to put your future present savings?

In a Junior SIPP – minimum investment amount of £25 a month is standard. Tax-free and allows maximum investment of £3,600 a year.

In your own Stocks and Shares ISA – minimum of around £25 a month, maximum annual contribution of £20,000.

In a Junior ISA – minimum of £25 a month, maximum contribution of £4,368 a year. In child’s name and he or she can access from age 18.

In NS&I premium bonds – minimum purchase of £25. A ‘lucky’ person could win the equivalent of 1.4 per cent interest in prizes.

Notes to Editors

1. £2,824 at 18 assumes 18 years of saving at an interest rate of 1.45 per cent (current best buy rate)
2. £137.50 is the average spend per child in 2019, according to Hargreaves Lansdown
3. Assumes 8 per cent average annual return, consistent with 8.3% average annual return on the FTSA All Share Index for the past ten years. Source: RLAM

About Royal London:

Royal London is the largest mutual life, pensions and investment company in the UK, with funds under management of £130 billion, 8.8 million policies in force and 4,046 employees. Figures quoted are as at June 2019.

For further information please contact:

Becky O’Connor, Personal Finance Specialist