This tax year the government more than doubled the amount parents can invest tax free on behalf of their children in a Junior ISA (JISA) from £4,368 to £9,000. But is this the last thing on their mind since the outbreak of Covid-19? Our households more concerned about daily living expenses and home-schooling rather than saving for university or a deposit for a house.
Seventy-five per cent of households have managed to save money during lockdown, but long-term financial impact of pandemic remains a worry, according to research from comparison website comparethemarket.com.
Anna McEntee, product director at comparethemarket.com, said: “We are starting to see green shoots of financial confidence from UK households, but the bad news still outweighs the good news – the savings households have managed to make during lockdown may offer some temporary respite however, when lockdown lifts, the cost of living will go back to previous levels, rainy day funds have been raided and borrowing will need to be repaid. People are still very worried about the long term hit their finances will take and this anxiety is especially pronounced among those with children at home and extra people to care for.”
Accelerated the estate planning process
Tasnim Khalid, head of wills, trusts and estate planning at JMW Solicitors says: “At a certain point in their lives, most parents begin to give serious thought about their children’s financial future, beyond the immediate day-to-day requirements – Covid-19 has accelerated that process by a matter of decades.
“The pandemic has forced a lot of parents to consider their mortality, particularly those in vulnerable groups who have young families to consider. It has created a lot of worry and concern. Many parents were very swift to act, putting wills in place and carrying out the necessary estate planning, albeit much earlier than they had ever envisaged.
“We are seeing a more thoughtful, proactive approach to estate planning when it comes to protecting children’s futures – for many parents, having their wishes recorded is as important as planning for the financial side of things. They want to safeguard children’s lifestyle and prospects – whether that be continuing to pay for school fees or preventing access to finances at a young age.
“Many are also keeping a close eye on impending taxation changes following the government’s coronavirus rescue package. There’s a lot of concern around potential inheritance tax changes and parents are very keen to ensure that their children aren’t subjected to unnecessary demands, which can sometimes be substantial and avoidable with proactive tax planning.”
Covid-19 no significant impact?
Myron Jobson, personal finance campaigner at interactive investor, says: “The Covid-19 market crash was a stark reminder to investors of the inherent risk of investing following a record 10-year bull run. But recent events should not have made a significant impact on parents’ financial plan for their children’s future.
“Investing is a long-term game, and while global markets appear to be in a state at present owing to coronavirus uncertainty, which may frighten some parents, history shows that markets have a knack of recovering – although things could get worse before they get better.
“Parents with Junior Stocks & Shares ISAs (JISAs) for children approaching 18, the age at which the child can access cash from the account, may seek de-risk the portfolio sooner to protect existing gains – although that comes with the risk of potential gains and the great beauty of JISAs is the very long time horizon of 18 years. And when the JISA becomes an adult ISA, investors can have an even longer time horizon.
“Recent falls in global markets made some investments are more attractive than they had been months before, and many of our customers like to buy on dips in global markets. But those who aren’t interested in timing the market could benefit from drip feeding their investments monthly to help smooth out the inevitable bumps in the market, buying fewer shares when prices are high and more when prices are low – a process known as pound-cost averaging.”
“While investment is a long-term game, it is good practice to review your JISA portfolio to ensure that it is still fit for purpose. While there is no hard and fast rule on how often you should review your child’s JISA, it is good practice to do so once or two a year while your combing over your own investment portfolio.
“Knowing when to cut your losses isn’t easy, but you should also think about selling perennial underperformers. A traffic light system can be helpful, if you want to put your investments through a spreadsheet – green for when things are going well; amber if an investment is stuttering, and red for when an investment has run out of time.”