Would you entrust £100,000 to an 18-year-old?

The personal finance editor of The Express, Chris Torney looks at the new Junior ISA and asks: Would you entrust £100,000 to an 18-year-old?

By Chris Torney

The government has finally announced details of the Junior ISA, the scheme that is being brought in to replace the scrapped Child Trust Fund.

At a time of widespread spending cuts, the coalition thought the CTF – which gave children a £250 present at birth, and another at age seven – was just too expensive.

Junior ISAs will have the same tax advantages as CTFs – so there’s no income tax to pay on savings interest, and no capital gains tax on investment profits – but there will be no free cash.

It is to be hoped that this will not put parents off from saving for their little ones’ futures: after all, the government money was merely meant to give CTFs a bit of a kick-start.

It was only the extra contributions made by friends and relatives that could boost the funds’ value to a meaningful level.

Junior ISAs, when they are introduced in the autumn, will allow annual deposits of up to £3,000.

Provided investment returns are reasonable, a child whose family takes advantage of this allowance in full can expect to take control of the best part of £100,000 when he or she turns 18. At the very least, the savings pot will be £54,000 if £3000 a year is saved and that’s before interest.

But, as far as many parents are concerned, here lies the problem: as with CTFs, the money saved up in a Junior ISA will transfer in ownership to their son or daughter as soon as they become an adult.

When the trust funds were launched, this was a big bone of contention, as it will undoubtedly be again when the first Junior ISAs are set up.

On one side, we have parents who have every confidence their 18-year-olds will use their windfall sensibly, as a contribution towards the cost of a college education, or as part of a deposit on a first home.

On the other, there are the somewhat less optimistic mums and dads who are convinced their children will simply splurge the cash on nights out clubbing, summer holidays and the 2030 equivalent of Xboxes.

Unfortunately, if your innocent tot grows up into an irresponsible, uncontrollable teenager, the Junior ISA offers no option to wrest back control of the cash.

So what do you think? Would you be happy to entrust this sort of money to your 18-year-old?

My view is that it’s up to me as a parent to make sure I raise my little boy well enough to use the money saved for him wisely (famous last words, I know!).

However, I admit, it is certainly a gamble.

If you don’t want to take this risk, you could easily save for your child in your own ISA. This will curtail your own allowance (currently £10,680 for stocks and shares plus cash); and you’ll have to make sure you are disciplined enough not to dip into the fund every now and then.

But if it means you’ll put more money aside without having to worry about how it will be spent, this could be the best option. 

Comments

[Junior ISA]

It is an interesting question. You don't want to be saving for 18 years just for your child to waste it all. But although teenagers can be guilty of spending money unwisely, most with that sort of money are likely to spend it wisely, for example on a home, something that will benefit them for the rest of their lives.

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