What does a Financial Adviser do when they have a child?

My wife and I were lucky enough to have our first child this year. Becoming a dad is indescribable, the pride you feel in this little bundle is like nothing else.

Returning to work made me think about all the advice I give to my clients with children. So, what does a Financial Adviser do with their finances when they have kids?

In life – watching your children reach key milestones is something to look forward to. However, they are all expensive! Whether it’s driving lessons, a car, a wedding, a house purchase, or university fees. You will have ideas on what is achievable for you, your finances, and what you should pay towards as a parent.

Helping them save themselves can reduce your financial burden. Here are some key financial tips for you throughout your life.

Financial education – did you know that financial education is not part of the national curriculum? We send our children to school for more reasons than to get the skills and qualifications needed to find a job one day, but it is a big reason to educate your children. They then get a job and earn money for the first time having never been told what to do with it. Teaching your children the value of money and how to use it to benefit themselves, their families, and society can remove years of future stress, bad decisions, and the taboo surrounding discussing finances.  

Pension—why would my child need a pension? They're miles off retirement! Well, that is one of the reasons it is such a good idea. Investing in a pension will provide basic tax relief, so, for example, if you were to put £100 into your child's pension, it would be grossed up to £125. Not a bad start!

The maximum you can invest in a child's pension is £3,600 gross (£2,880 NET).

One of the downsides of pension investments is that they cannot access the money until they reach the legislative age (currently 57). However, that can also be seen as a positive, as they will not be able to spend it on a month-long trip to Ibiza for their 18^th birthday. It also means it will benefit from time in the market and compound growth.

For example, if you were to put £1,500 in (GROSS) each year for 50 years, with an average 6% growth rate, you would end up with a balance of £490,425.02.*

To invest £1,500 per year, you would only need to invest £1,200 (£100 per month), and you would receive £300 in tax relief within the pension.

This example would mean you would accumulate £413,925.13 in growth over the 50 years. You would also save £15,000 in tax relief over this time frame.*

JISA—This investment wrapper will enable the funds to grow tax-free and can be accessed from age 18, with the child taking control of the investment from age 16. The money can be invested in the markets and could experience a greater return than cash.

The money grows tax-free, so there are no capital gains tax or income tax considerations.

If you were to invest £9k in a JISA from birth to age 18 with an average return of 5%, the JISA would be worth £278,048.*

*These figures are examples only and they are not guaranteed  - they are not minimum and maximum amounts. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up.  You may get back less than you invested.

An investment in a Stocks and Shares ISA will not provide the same security of capital associated with a Cash ISA.

The levels and bases of taxation, and reliefs from taxation, can change at any time and are generally dependent on individual circumstances.

Please note Cash ISAs are not available through St. James's Place.

Gifting—Whether you decide to gift to your children in the form of a JISA, pension, cash, or another asset type, this is a great way of not only helping your children in the short term but also reducing your estate for inheritance tax. Inheritance tax is not a concern for everyone, but for those who do have an IHT liability, gifts within the HMRC rules are a key consideration.

In death – you’ve spent your life watching your children grow up and have helped them with some effective financial planning, the last thing you want to do is create a headache for them on death. Here are some considerations.

Will – It is common for new parents to suddenly think about their mortality, potentially for the first time. You no longer have the luxury of worrying about yourself only; someone else depends on you. A will can protect your kids, ensuring the estate is passed on how you wish. There is plenty more to say about wills, but let's keep it light for now.

Insurance - One of the most overlooked areas when it comes to financial planning. Not to bring down the tone, but you are going to die one day. This is one of the few certainties in life. People often insure their mobile phone or white goods purchases over their own lives!

If you have ever known anyone who has been the beneficiary of a life insurance policy, they will likely tell you that it is life-changing. Life insurance can pay off any existing liabilities, such as a mortgage or loan. It can also put your family in a secure financial position to cover the loss of income to the household or additional expenses such as childcare, funeral costs, etc.

Ask yourself how your loved ones would be impacted financially by your death. Will you leave them with the burden of debt or a lump sum to help them remain secure?

Other types of personal insurance that could help protect your family are income protection, family income benefits, private medical insurance and critical illness. 

If you own a business, the company can pay for other types of cover to protect you and your family.

Trust—Some assets can be placed into trust, and depending on the type of trust, there could be multiple benefits. These could include bypassing probate, being outside of the beneficiary's estate for care home fees, divorce sharing orders, and bankruptcy.

Will writing involves the referral to a service that is separate and distinct to those offered by St. James's Place. Wills along with Trusts are not regulated by the Financial Conduct Authority

Trust planning often requires a specialist, so you should seek professional financial and legal advice before enacting any trusts. Not all trusts are the same, and some trusts (bare or absolute trusts) are irrevocable. However, if done correctly, it can be a highly effective way to protect and pass on your estate to the next generation and future generations. They can then pass on all the good habits and knowledge you have taught them to their children.