/ Money, Parenting

Will Junior Isas breathe life into children’s savings?

Adult and child hands holding money

Details of the Junior Isa are emerging and parents will be able to open accounts from November. But will they prove to be a helpful way to save for our kids – or will children from lower-income families miss out?

Junior Isas, like child trust funds (CTFs), are designed to encourage parents and grandparents to save for their children’s and grandchildren’s future.

Families will be able to put up to £3,000 into Junior Isas for each child from November 2011, with the money locked away until they reach 18.

Who will benefit from a Junior Isa?

CTFs had the advantage of incorporating free money from the government – it’s a shame the government isn’t contributing to the Isa scheme in the same way by providing a voucher. Now there’s little to encourage poorer families to save.

Still, Junior Isas will be tax-free – and six million children will be eligible – so they do stand a chance of succeeding, especially as parents will have a range of competitive products to choose from, although it’s not yet clear who’ll be offering them.

We need to give a helping hand

There’s a separate school of thought, however, that suggests that parents should save for the family instead, and let kids learn about paying for things the hard way. This was a point that was raised by commenter Canonach when I started a Conversation asking how important it is to save for our kids’ futures:

“My wife and I have saved all our lives, but not for the children – we saved for the family. If the children needed help we were there for them, but first they had to show some effort themselves. There is no way I would tell a child I was saving for them, it removes the incentive to do it themselves.”

A valid point, however, I still think it’s vital to give them a helping hand. With university tuition fees about to rise to £9,000 a year, our children are going to face some serious financial challenges. Even saving for a new car is going to be a struggle.

Are Junior Isas the future?

Introducing children to the notion of saving and prudence with money can only be a good thing, but parents will still need to help out. In my mind, financial education and proactive saving for your children should be two parts of the same strategy.

Can the Junior Isa help us with the second part of that strategy? Danny Cox, Head of Advice at Hargreaves Lansdown, thinks so. ‘The Junior Isa has the potential to be the most successful children’s savings scheme of all time,’ he says.

Do you agree? With a resounding 97% of you voting against the idea of scrapping the Isa, it’s clear that they are popular with adults – time will tell if parents feel the same way.

Simon says:
11 May 2011

ISAs are good vehicles to encourage saving. However, despite their tax-free status, Junior ISAs need to have competitive interest rates, rather than some of the pitiful rates associated with most current children’s savings accounts (also tax free it should be noted). Our children have some savings in standard accounts (attracting just around 1% interest) and also some in children’s regular savings accounts (attracting up to 6%, but with a limited amount that can be paid in per month). If we really want the next generation to save – particularly in a difficult economic climate – we need to enable kids to see a return on their investments, just like in the adult world.

Jasmine says:
13 August 2017

You hit the problem right on the nail Simon, thank you for sharing your thoughts.

Julian says:
25 May 2015

When are you going to provide a more up to date summary of the situation on Junior ISAs, in particular Stocks & Shares ISAs? I have rejoined you on the mistaken assumption that you would be offering something considerably better than what you are currently offering.