Thinking about your child’s future, and making present-day financial preparations for it, is a two-pronged endeavour. Not only are you aiming to make shrewd and positive financial decisions that benefit your child in the long term, but you should also be aiming to use this process as a form of education, in order that you can educate your child and instil in them a sense of financial literacy as they grow older. But how might you effectively do both? What follow are three simple approaches to saving for your child’s future, with suggestions for how you can involve them along the way.

Conventional Savings Accounts – and the Power of Compound Interest

Your child’s financial future – and their education in savings – should start with the conventional. Savings accounts are a great way to graduate your child from the piggy bank, and a great opportunity to afford them the chance to save for larger personal purchases.

This can also be an excellent teaching moment with regard to compound interest, as a concept and as a key incentive for long-term savings. In adding regular amounts of money to the savings account, and watching the amount of interest increase each month, you can show them the value of waiting, and thinking longer-term.

Bonds

All the time, you can also be putting small amounts of money away elsewhere each month for your child’s future. Since this money won’t be needed until your child grows up, it can be somewhere that the money won’t be accessible; a fixed-rate financial product is an excellent repository, as the money can benefit from increased rates of interest in exchange for being ‘locked away’. Bonds are a strong choice here, and useful for predicting how much your child will see returned.

ISAs

ISAs are another useful financial product to utilise, and to introduce your child to, on account of their unique properties. Primarily, ISAs are tax-free vehicles that exempt any interest or capital gains accrued within from taxation. Taxation on interest isn’t usually something that we have to worry about, as everyone receives a form of Personal Savings Allowance that exempts tax up to a certain threshold. But when saving for the long term, compound interest can quickly see funds reach that allowance; ISAs are a good contingency.

There are also different types of ISAs with different unique benefits. For example, it is likely to only get harder to buy a home, and helping to get your child on the property ladder could be the most helpful thing you do as a parent. LISAs are an extremely efficient way to raise money for a deposit, with a 25% annual return on up to £4000 annually. Starting one for your child, and explaining its purpose to them as they grow, could see them set with a house deposit relatively early in their adult life.

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