Are you looking to start investing for your children but want to do so in a way that has a positive impact on their future too? Well you could consider a Junior ISA and choose to invest it ethically.
Junior ISA Basics
Lets first look at what a Junior ISA (JISA) is.
A JISA is exactly the same as an adult ISA, but for children. It’s a tax-efficient individual savings account that can be saved in cash or invested in stock & shares. The only difference is the age at which it can be access and the annual allowance you can contribute.
Junior ISA Rules
Annual Allowance: £9,000 per year maximum
Who can open: A Parent
Who can contribute: Anyone
When can child access: Full value on 18th birthday with no access at all before.
Tax-Rules: No tax or income or increases. A Junior ISA is a tax-efficient “wrapper”
Options for adult child at age of access: All goes into their name. They could potentially use some of it to open their own adult ISA or adult Lifetime ISA. The money is now theirs so this does means they can spend it all too.
Benefits: A JISA can be a great option when investing for children as there are many providers, they are relatively straightforward and anyone can contribute.
Downsides: The main downside is that it all becomes the child’s on their 18th Birthday and neither you or your child can access beforehand. If you are investing with a stocks and shares JISA there is a risk that the value can fall as well as rise.
Investing for Children
If you plan to start investing into a stocks and shares JISA rather than a cash JISA there is a strong argument to start early. Investments are for the long term so the more years you remain invested the more likely your child is to benefit from investment growth. During those years the values will absolutely go down as well as up. This movement is natural with investments and another reason to give the investments a minimum of 5 years or longer.
Ethical and Sustainable Junior ISAs
You can invest a JISA in any stocks, shares or fund but more and more parents are wanting to invest without compromising on their own personal values and choosing to invest ethically. This might be simply excluding companies that do harm or actively choosing socially responsible or positive impact companies.
Check out the following 3 JISA providers who offer one or more ethical investment choice.
- BigExchange offer a range of positive impact funds for different levels of risk
- Wealthily offer 5 ethical funds for different levels of investment risk
- Nutmeg offer a Junior ISA and one option for a Socially Responsible Funds
Here’s a few things to consider when investing for children.
- Be consistent. Invest little and often and benefit from the rises and falls in the market. You’ll be buying investments on different days at different prices so the cost will average out over time.
- Time. Are you able to set aside this money for a minimum of 5 years and wont need to access it before your child turns 18?
- Diversify. This means spread the risk into different types of investments or choose a fund that has already done this for you. Diversification doesn’t remove the investment risk but does reduce it.
- Costs & charges. Investments carry costs, usually for the funds and also for the “wrapper”. Compare all the costs before beginning.
- Values WILL fall. Investment values do fall as well as rise, this is a natural part and risk of investing and it’s why it is a long term option.
Involve your children with their investments
Rather than surprise them on their 18th birthday, let them know about the investments well in advance.
Talk about the investments, what interests them, do they want their money invested in positive impact companies and show them the good days and the fall days. Talk about the things they could do with it and help them make plans and emotionally and practically prepare for receiving the money. This experience means when they come to investing for themselves in the future they’ll have the skills to continue investing well or use their money wisely for something important to them.
Junior ISAs are not the only way to invest for your children’s future, there are other ways to save and invest so check out this post 3 Ways to Invest Money for Children.
As with all investing, your capital is at risk. Tax treatment depends on your individual circumstances and may be subject to change in the future