Does your 12 year old have a pension yet? The best financial advice for every stage of your child’s life | Parents and parenting

For many families, the financial pressure caused by the cost of living crisis means it is hard to manage the daily expense of rearing children, let alone simultaneously save up to help them after they finally leave home.

The money involved in providing even a minimum standard of living until they are 18 is big anyway. The estimate, which includes housing and childcare, is almost £160,000 for a couple and nearly £210,000 for a lone parent according to a 2022 “cost of a child” study from the Child Poverty Action Group.

But beyond making sure they are clothed and fed, there are expensive milestones ahead, from rites of passage, such as learning to drive, to the cost of college or university and raising a deposit to buy a first home – and it is important to give them consideration.

Under 18s

Open a savings account
If your children are still wearing nappies, it can be hard to contemplate the day they will strike out on their own. But even if you don’t have much spare cash, putting away even a small amount regularly could deliver a tidy sum by the time their 18th birthday arrives.

The obvious place to start is with a savings account and, just like for adults, there are lots of different types, from easy-access and regular savers to tax-free Isas. Whichever you choose, keep an eye on it, as you may have to move your money to chase the best return.

“The sooner you start saving for your child, the better,” says Anna Bowes, co-founder of savings tracking website Savings Champion. “By putting something away for them when they are born, they could well have a significant amount of money to pay university fees or perhaps a deposit for their first house.”

If from birth you save £100 a month into an account paying 5%, after a decade the balance could be more than £15,500, and could hit £34,600 by the time they are 18, according to Savings Champion.

Be tax-efficient
There are two types of Junior Isas: stocks and shares, and cash. You can hold one of each, and up to £9,000 can be saved per tax year. A parent or guardian has to open the account but, helpfully, if you have generous relatives or friends, anyone can pay in.

“A Junior Isa lets you save and invest on behalf of a child under 18,” says Myron Jobson, senior personal finance analyst at investment platform Interactive Investor. “With no tax on the earnings, any money you put away can grow faster.”

Jobson thinks cash Junior Isas are “pointless” other than as an option for teenagers (where you need to remove the short-term risk of a sudden loss of value), with the returns from a stocks and shares Isa giving you a better chance of beating inflation over time.

“Monthly direct debits from your current account into a stocks and shares Junior Isa are a hassle-free way to save for your child,” he continues. Putting away £50 each month over 18 years, assuming annual growth of 5%, could deliver a nest-egg of £17,500. However, this return is far from guaranteed, as investing “always comes with risk”, he adds.

Invest in the stock market
You can open a stocks and shares Junior Isa with investment companies such as AJ Bell, Interactive Investor or Hargreaves Lansdown. These sites offer thousands of funds, shares, investment trusts and bonds to choose from. However, if you are new to investing, you might find providers, such as Wealthify, that offer just a handful of options an easier place to start. On most sites you can start from £25 a month and build up from there.

“When investing for your children, it’s important to think about the timeframe in mind,” says Laura Suter, head of personal finance at AJ Bell. “If they are young, you could have up to 18 years until they will access the money. This makes for a decent investment horizon and means you could potentially take more risk with the money.”

Consider setting up a pension for your child
Obviously, sort out your own pension first but, if you can afford to, more people are setting up retirement funds for their children.

By starting early, you can take advantage of the powerful effect of compounding, whereby increases build upon themselves, says Görkem Gökyiğit, a financial planner at Lubbock Fine Wealth Management.

Around 38,000 families in the UK are already contributing to pensions for their under-18 children, pouring £67.5m into their retirement pots last year alone, says the firm.

Pensions have the added benefit of not being accessible to the beneficiary until retirement, rather than at age 18, as with a Junior Isa.

Even if you only end up paying in for a few years, the pot will have many decades to grow in value.

Young(-ish) adults

Help with university costs
Student finance is the official government funding that pays for university tuition fees and helps with living costs. It includes the maintenance loan, which is designed to help with costs such as accommodation and food. How much maintenance loan a young person gets will depend on their household income (for most students, that’s how much their parents earn), where they live and where they will be studying.

This is a time of life when the bank of mum and dad – assuming it has funds – may well start seeing some serious “withdrawals” being made. For a typical student, the maintenance loan is likely to fall well short of covering their living costs.

The website Save the Student has looked at how much money parents give their children at university. Its most recent data indicated that, on average, students receive £149.80 a month from their parents.

Then there is the scary statistic that the average student will leave university with £45,600 of loan debt (this is the forecast average figure for the cohort who started their course in 2022-23).

Some parents who are able to may want to consider options to help deal with this burden.

Daniel Blandford, a chartered financial planner at The Private Office, says some parents may see some value in lending their child the value of their debt and perhaps looking to formulate an agreement for repayment on less stringent terms than Student Finance England.

Alternatively, he says, “there are many different forms of gifting that you can make use of to support family members and potentially mitigate an inheritance tax burden”.

A helping hand on housing costs?
This is where the bank of mum and dad will often be on the hook for the biggest sums.

Data issued by the Halifax earlier this year found that the average amount put down as a deposit by those buying their first home in 2022 was £62,470 – up 8% on 2021. In many cases, mum and/or dad will be contributing to the deposit, or maybe even funding all of it.

There are some mortgage products available that let first-time buyers borrow up to 100% of the price of a home, provided mum and dad or another family member help out – for example, by putting up security on the home loan (usually either savings or their own property) or agreeing to be a “guarantor”: someone who would be responsible for paying the mortgage if the buyer cannot keep up with the repayments. That can mean these are sometimes only an option available to those with well-off families. Deals available include the Lend a Hand mortgage from Lloyds and the Family Springboard mortgage from Barclays.

But that may not be the end of it…
Soaring mortgage costs mean some parents are having to bail out their offspring in order to help them stay on the property ladder.

“The reliance on the bank of mum and dad becomes even stronger in the trickier market,” says Chris Sykes at mortgage broker Private Finance.

He says he is seeing examples where parents are having to step in because their children’s home loan payments have gone up so much.

“In one case we’ve seen, the parent was a guarantor on the mortgage and, due to changing circumstances, this wasn’t sustainable any more, so the parent paid off the mortgage in full. For another, paying towards the monthly commitment was the solution when the child had to remortgage and the payments had doubled.”

As children get older…

Assisting with childcare
When children become parents themselves, one thing that their own parents may be able to do that will make a huge difference financially is help with childcare.

For some parents, paying for childcare is their biggest expense. A string of surveys have shown that the cost of childcare across the country has continued to rise steadily, at a time when many families are already struggling financially. So, if grandma and grandad look after the little one(s) for maybe one or two days a week, that could result in a saving of several thousand pounds a year.

According to a survey issued by Paragon Bank earlier this year, 17% of people aged between 65 and 74 support family members by providing free childcare. Of those who provide this help, nearly two-thirds (64%) look after their grandchildren to enable their parents to work, with 23% doing so because of the high cost of childcare, it found.

Of course, this will not be an option for some grandparents – for example, because they are still working themselves, live too far away or suffer from ill health.

Make – and update – your will
You could end up bequeathing your offspring a major financial headache if you die without a will. Meanwhile, some older people have never spoken to their children about their finances, resulting in confusion and anxiety.

Close to a third (27%) of those aged 35-59 said they had no idea what their parents’ plans were for passing on their wealth, according to research issued in June by Schroders Personal Wealth.

Before you can write a will, you need to decide who gets what, says the government’s MoneyHelper website. That means setting down the basics of your plan for your money and possessions – your “estate” – early on, before you visit a solicitor or discuss your will with your family.

Once you have a will in place, the official advice is that you should review it every five years, and after any major change in your life.

Secure your digital legacy
In a similar vein, something that could really make life easier for your offspring after you have gone is making time to sort out your “digital legacy”: basically, any information you will leave behind online after your death, from online bank and investment accounts and social media profiles to photos stored in the cloud.

There are a number of services that allow people to leave instructions for what should happen to these, so that your loved ones know what to do and can access vital information that might be needed as part of sorting out your estate. They include insurer SunLife’s My Digital Legacy and Biscuit Tin.