When putting aside money for your children, get God on your side!
“GOD helps the poor, but not the poor lazy” . . .
The great jazz musician Louis Armstrong never said a truer word.
It applies especially when it comes to putting some money away for our children. If we're lazy, if we don't get up off our behinds and make that phone call, it's just not going to happen.
How do we put some money in a safe place for them?
For the short to medium term, the Isa is the most popular savings account, and there is a special type designed specifically for children: the Junior Isa. There are two types of Junior Isa, but they have in common that you will not pay tax on your interest.
With the Cash Junior Isa, your savings remain in cash. Some people feel more comfortable saving in cash, because it's close to hand.
However, experience shows that stocks and shares investments generally outperform cash, and by a considerable margin, in the long term.
In their study ‘UK Financial History 1945-2006' Scottish Widows compared how cash savings and stocks and shares investments performed over 61 years.This was based on what would have happened if you had put £100 into a building society account on the last day of the Second World War (May 7 1945) or invested it in the stock market.
By 2006 the building society account would have grown to £1,767, but the stock market investment would be worth over £125,000.
Our children can take over their Isas in due course. When they get to 16 they can have both a junior Isa and adult cash Isa, but they can't open their own adult stocks & shares Isa until they are 18.
Another option for the very long term is the Child Stakeholder Pension.
Yes, it's not a well-known fact, but you can open a pension for your child, and put money away to help them when they retire.
According to the current rules, you can pay £2,880 a year into your child's pension. This functions as a nominee account, which means that your child will benefit from 20 per cent tax relief on top of this, so that of every £100 that goes into the pension, you pay only £80 – the remaining £20 is paid by the taxman. This takes the total to £3,600.
The other great thing about a children's pension is that contributions don't have to be just by parents. Any family member can contribute, which also makes the stakeholder pension an ideal vehicle for grandparents to save for their grandchildren.
It's the same for the Isa too, of course.
But the advantage of the pension is that they can't touch it until they reach retirement age. That means that, through all the university years, all the working years, all the years when they are parents themselves, you are giving them peace of mind.
If you are thinking of putting some money aside for your children or grandchildren, we can help. So be poor, but don't be the poor lazy. Get God on your side – you just need to pick up that phone!
:: Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005. Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com