How to create the blueprint for your child's future investing strategy

Junior ISAs are one option if you’re looking to invest for your child’s future – plus, they can’t access their money until they turn 18. Along with kickstarting their future nest egg for them to take over when the times comes, it could also be a springboard to get them involved with investments and shape their own future strategy too.

Why help your child to invest?

Alongside the pure financial benefits of getting money invested from an early age, talking to your children about the investments you are making in the Junior ISA will help them learn more about the potential opportunities of investing.

My young children both have stocks and shares Junior ISAs and at their age they’ve already enjoyed seeing the numbers change, performance graphs and recognising company names.

Very recently, my eldest asked more about my work and what investing meant. I used an example of shares and how buying a small part of a company is different to putting money in a bank account. I even talked about how pocket money he spends on a new set of Lego is then gone, but the money invested for him is there for when he might head to university or start his first job.

Whether your investment style is funds, investment trusts or individual stocks, older children might want to learn about how companies make or raise money and what to research if they were going to make an investment themselves. This could include how to review how a company is performing.

Time is on their side

Even though a Junior ISA could have a timeframe of up to 18 years, many parents default to cash when saving for their children. Government data* shows 42% of all money paid into Junior ISAs in 2022/23 went into cash Junior ISAs, rather than the investment version.

A stocks and shares Junior ISA will usually have plenty of time to ride out any short-term dips in the market, helping your child learn about investment risk and volatility as much as in times of good performance. History also shows that investing typically delivers better returns over the long term.

Investment returns have outperformed interest on cash over the long term. In the past decade, £1,000 invested in a global tracker fund would now be worth £3,284, while the same amount in a typical cash ISA would have grown to just £1,141**.

Every adult in the UK will be acutely aware of what inflation is and the impact on the cost of living in recent years. Investing money for the long term can help your child understand how that could give them the best chance of beating inflation.

You could explain why investing could potentially help them buy more with their money or put more towards their future financial goals than they would with money left in cash. In the future you could compare it to what happened to cash over the same period.

Some people worry about access to a potentially large pot of cash when someone turns 18. But research carried among AJ Bell customers showed that less than one in 10 of our Junior ISA holders cashed out their account when they reached 18. Getting children involved with investing and thinking about financial goals will help them feel more engaged with their money when the time comes and increases the chances it will continue to be used wisely.

Future pension decisions

Fast forward to when they are in the world of work, and if they are employed, using a workplace pension. This scheme will be picked by their employer and without any other action, they’ll be placed into the ‘default’ investment fund. This won’t be designed for them personally and as different default funds have vastly different investment strategies, this could mean different investment outcomes.

Generally, younger investors can tolerate greater fluctuations in the value of their pension pot over the short term as they don’t need to access the money for decades. Historically, those who have been willing to accept market dips in the short term have generally been rewarded via positive returns over the long term.

Getting your child interested in investing and the opportunities that come with different types of assets could help them pick a more appropriate investment much earlier.

It could prevent them falling for scams

While the UK regulator is acting against misleading financial adverts***, helping children to understand investments and how potential returns are generated can help them spot and avoid falling for scams, particularly ones that sound too good to be true.

So-called ‘finfluencers’ share financial insights with their social media followers. While educational tips on topics like budgeting are valuable, others give unregulated advice and promote risky investments to younger people to get rich quickly.

*HMRC ISA statistics
**Investment figures based on Fidelity Index World, excluding platform charges. Cash figures based on Bank of England average cash ISA rates.
***FCA steps up action against misleading financial adverts