The early bird catches the worm, and that’s certainly true of savings. Starting a retirement fund for kids after they are born will help to generate a pension pot that supports them in later life.
Pressures on young adults have never been greater. House prices are unaffordable to most unless the bank of mum and dad chips in with a deposit.
As for enjoying defined benefit pensions at retirement, the number of organisations offering such schemes is falling fast. According to JLT Employee Benefits, last year just 19 companies that are listed on the FTSE 100 stock exchange still give staff access to DB pension schemes.
It shouldn’t fall to parents to fill the financial gap, but those with some spare cash can build wealth for their children if they start early enough. This will help during retirement.
Kick-start the savings habit
We all fall out of the savings habit from time to time. That’s often because of financial pressures, unexpected bills, or a desire to enjoy income earned – especially when interest rates are low.
However, setting an example to children can shape their financial thinking as they grow up. For this to happen, there needs to be a shift in behaviour.
There’s a definite trend showing UK residents are saving less these days. A recent Office for National Statistics (ONS) report shows that the current savings ratio is still historically low at 4.5% of disposable family income.
Where children are concerned, however, there’s usually extra motivation to provide a secure future. Parents can currently put up to £2,880 per year into a pension for their child. With tax relief added, this figure rises to £3,600 a year.
If consistent savings can be sustained over 18 years, around £65,000 would be accumulated in the child’s pension fund. Then, with typical growth patterns, this could provide a sizeable fund when the child reaches 55 years of age.
Much, of course, depends on inflation and economic conditions over the period. Please be aware the value of investments or income from them can fall as well as rise.
Get savings advice now!
There really is no time like the present. By involving children in the savings process early on they appreciate the significance of savings.
To achieve the targets listed above, other items of expenditure could be reduced – presents, pocket money, that first car. What might seem like tough love in the short term would potentially help to set them up for life.
Logic Wealth Planning offers independent financial advice on pensions and savings. Whatever your goals, we aim to make the process hassle-free.
If you’d like help planning a secure future for your children, please get in touch.
Give us a call on 0808 1234 321 (freephone) or email firstname.lastname@example.org to arrange a convenient time to discuss your life and wealth plans.