Saving for your child's future doesn't have to be like pulling teeth
Do you have a young child or grandchild? Then you need to read this. Do not turn that page!
Inflation went to 2.5 per cent in July. The Bank of England blamed fuel, housing, leisure and food.
However, sometimes we have to listen to the wisdom of our children. So today, we expose the invisible culprit the Bank of England missed. I refer, of course, to the Tooth Fairy.
The annual Tooth Fairy Index says she leaves an average of £2.05 under the pillow. This has more than doubled since 2017, when she was just leaving £1.
No wonder the Consumer Price Index of inflation is going ballistic. Even though the Fine Bedding Company (they make pillows) commissioned the survey and talked to over 2,000 people, the £2.05 figure appears to be just the average. In the swanky houses, 17 per cent of children are receiving £5 – while another 4 per cent get just 20p a tooth. Hardly worth all that wiggling and pulling.
Well, leaving the window open for the Tooth Fairy is fine, but there's better ways of putting a few pounds under your child's pillow.
Did you know, for instance, that you can make your child a little pension saver, by opening a children's Stakeholder Pension for them? They still benefit from the 20 per cent top-up by the taxman, even though they aren't working, and may be only fifteen minutes old!
Of every £100 that goes into the pension, you pay only £80 – the remaining £20 is paid by the taxman.
Wealth manager Brewin Dolphin's new research shows that if you are able to save £50 a month for your child for the first 18 years of their life, even if you then stop, it could be worth £212,883 by the time they are 43, in the year 2061.
And if you were able to save £100 a month until they are 18, it could grow to £425,766 in the same time.
Now, Brewin Dolphin are assuming a generous 8 per cent annual growth in these pension savings. This may seem a bit high, until you consider that the average pension fund grew by 10.7 per cent in 2017, and that was the sixth consecutive year of double-digit growth (Source: Moneyfacts).
Moreover, it's not just for parents. Any family member can contribute to the pot, which makes the Stakeholder Pension an ideal way for grandparents to save for their grandchildren. And here's the best part: they can do so free from any risk of inheritance tax.
Now, we all know that money in a pension is locked away until we reach 55. This is an advantage, if you want to stop your children accessing the cash and blowing it in the student's bar, or on a backpacking trip along Route 66.
On the down side, it is also locked away during the years when they could really use a leg-up: college, university, first home, first car.
To save cash for these situations, where the money can grow tax-free but still remains close at hand, the junior Isa (or ‘Jisa') could be ideal. This financial year, you can save up to £4,260 into a Jisa, and control of the money passes over to your children only when the little darlings turn18.
Whether they'll have any more sense at 18 than they had at four is another matter.
The point is - with good financial advice, you can salt something away today that could grow well ahead of inflation, and give your children a handy lump sum either at retirement, or in the not-too-distant future.
So never mind the Tooth Fairy. Sorting your child's financial security doesn't have to be like pulling teeth.
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005 . Further information is on the Facebook page 'Kennedy Independent Financial Advice Ltd' or the website www.mkennedyfinancial.com