Junior Isas - Protecting Children From Certain Uncertainty
The one thing you can say with absolute certainty about the future is that it is absolutely uncertain
. Young adults today are facing a barrage of completely different challenges to those experienced by their parents who, in turn, have faced a suite of challenges quite different from their parents.Today university tuition fees are presenting young people with very difficult choices likely to have far reaching consequences. Many students today opting to go to university have to accept that they could easily be still paying off their student loans and debts when they are in their fifties, by which time who knows what the retirement age will be?
From one end of life to the other, the financial challenges and problems have shifted, and it is entirely impossible to say what fresh challenges will be facing young children today once they reach young adulthood in a decade or two. But whilst there is no doubt at all that young adults today would seriously benefit from a large cash injection, many of their parents have had their own finances so stretched that such an option isn't, well, an option.
Fortunately there is an answer, and it comes in the form of the Junior ISA, or Junior Individual Savings Account. These are children's ISAs which have been introduced to fill the gap left by the closure of the Child Trust Fund scheme previously launched by the government.
Just as with standard ISAs, children's ISAs allow for long term investment, with the interest earned being tax free. There's currently an annual limit of 3,600 which can be contributed to the account, but as from 2013 this is likely to rise in line with inflation.
However, one of the biggest advantages of these ISAs is actually the solution to what many people perceive as the biggest problem with saving for their child's future. With many parents' finances already stretched close to breaking point, putting away a sum of money on a regular basis, which can't ever be accessed except by the child when they reach the age of 18, is simply not feasible.
But one of the main differences between the old CTF and the new Junior ISA is that anyone at all can contribute towards it, not just the parents. This means that people such as grandparents who may have a little spare equity can help their grandchildren in a way which is entirely tax free.
Putting away the current limit of 3,600 each year (300 per month) into a cash ISA with around a 5% interest rate should result in a cash sum being made available to the child on their 18th birthday of over 100,000. Clearly whatever the future holds, this sort of money is almost certain to make a very significant difference.
Whether it's getting their first car, paying for their university education, getting married or getting their foot on the property ladder, a cash sum available at this stage in life could well help to give them the sort of start in life which will have a long lasting impact.
So even if parents are currently struggling to put away a sum of money each month for their child's future, a Junior ISA offers the opportunity to allow anyone at all to donate from time to time. Grandparents may wish to make a monthly contribution, or perhaps make a contribution on special occasions such as Christmas and birthdays.
But since anyone at all can contribute towards a child's ISA, the opportunity to save more for the long term becomes much easier. Just remember to shop around as interest rates do vary, and regardless of how much you might be able to invest, having that investment work harder over a decade and a half or so will make a very big difference.
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