This blog is an extract from our free “Good Guide to Finances at 40“, available to download now
The current prolonged period of low interest rates and rising costs mean a challenging time ahead for young people. Parents, and less financially- stretched grandparents, can help them get off to a good start in life.
Kids, eh? Don’t know they’re born, do they? They treat their parents’ home like a hotel and think of them as a taxi driver. They’ve the life of Reilly, don’t they? Well, actually, no. For all we cajole about how they take advantage of the Bank of Mum and Dad, the reality is children of today are set to have a more constrained financial future upon adulthood than their parents and, even more so, their grandparents, ever did.
For the past three years, Scottish Friendly has conducted a quarterly survey, the Scottish Friendly Disposable Income Index, to provide a unique insight into the financial health of the UK population.
Age matters in terms of disposable income. The Scottish Friendly Disposable Income Index shows that younger age groups are much more likely to be in a situation where their expenditure on essentials is actually higher than their incomes.
On the other hand, the average UK retiree has significantly more cash left over after buying housing and essentials than someone in full-time work.
While the loose monetary policy of recent years has kept house prices high, to the benefit of those at the older end of life, the big deposits now required to obtain a mortgage are even harder for young people to accumulate when returns on savings are so low.
Student debt, too, is something the parents and certainly not the grandparents of today’s children had to contend with. It’s a grim thought that the children of today could be paying off student debt well into their working life.
Parents do what they can of course to help but it’s and grandparents that have the time and the cash to help their grandchildren get off to a good or better start in life by putting money aside for them on a regular basis.
Time is a powerful ally for those investing on behalf of children as long time-scales sharply reduce the risk of getting back less than you invest when it comes to stocks and shares whilst at the same time increasing potential returns. Grandparents are often better placed to help with putting money aside for their grandchildren and using their own ISA is a good place to start.
With Scottish Friendly’s Investment ISA, grandparents can invest in their name from as little as £10 a month as long as you’re not already investing in an investment ISA and remain within your £15,240 ISA allowance. You can, however, have another type of ISA like a cash ISA.
The Scottish Friendly ISA lets you set up separate policies – or pots – within your plan that you can name for each of your grandchildren and track your investments into them.
By investing for them in your ISA, you stay in charge of the money. So you can surprise them with a lump sum when you think they need it most – for instance to help with a deposit for their first home.
As with all stock market investments, your investments can go down as well as up so you could get back less than you have paid in. Tax treatment depends on individual circumstances which may change in the future.