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Most kids love the idea of piggy banks – they’re cute, you can name them, they look good on the shelf. But how many kids actually keep their birthday money stashed away anymore? While the theory is still solid, saving at any age is “a really important thing to do,” says Jackie Spencer, senior policy and proposal manager. MAPS (Wealth and Pension Service). “Even just setting aside a small amount.”
A few quid here and there can really add up over time, and “as well as obviously setting some money aside, it also teaches kids savings habits” that will stand them in excellent stead throughout their lives.
In fact, it’s never too early to start getting a grip on your finances. “We’ve done a lot of research that shows that children can develop money habits between the ages of three and seven,” says Spencer. “So that’s why it doesn’t really matter about the amount of money.”
Set aside what is affordable for your family
Saving is a luxury that not everyone can always afford, but “if you can afford it it’s a good thing to do,” says Spencer. No amount is too small, let’s say you give your child £2 pocket money per week. “You can say, ‘We’re going to put £1 into a savings account and you get to do whatever you want with the £1.’ It gives you a chance to talk with your kids about money and what things cost, and it can lead to other conversations about budgeting and shopping,” she adds. “A lot of money is digital now. You tap your card, you rarely pay cash or write a check, so it’s even more important to talk about money, because money can be much more alien.” This means it can be much easier to avoid it without realizing it.
Key Savings Options to Consider
Spencer says there are three main products when it comes to saving for your kids:
savings accounts for children
“These work much like a savings account for an adult, and an adult can take it out in the child’s name. It’s your more short-term pocket money type of account.” Most banks offer these, some more accessible than others, depending on how frequently you expect to make withdrawals.
Junior ISA
“These are a moderate savings option. Then, parents need to set up one for a child – they can be cash or stocks and shares ISAs – but anyone can contribute. That money grows tax free, so there’s no tax on any earnings. It transfers into the child’s ownership when they turn 18.” For example, this is the type of savings option that would be great when it comes to paying for university. However there is a limit to how much you can invest in a Junior ISA each year. “The current limit for 2025/26 is £9,000.”
Child pension
Yes, you can actually start a pension while still having children. The appeal of child pensions Explaining compound interest, Spencer says, “It’s much easier to save small amounts first than trying to save a larger sum for the money you’ll need for retirement later in your 30s or 40s.” However, “that money is locked in a defined contribution pension until you can access it – the current age is 55 but it’s going to 57 in a few years.” That said, it’s still “a great long-term way to save money for a child.”
“Again, there’s a limit to how much you can invest, it’s currently £2,880 and then the government will top up £720 of this. So the maximum contribution per year into a pension is £3,600. That will also be tax free.”
Second option is NS&I premium bondBut because earnings are based on the luck of the monthly draws, they do not have the “certainty” of returns like the other three options.
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Saving is an important life skill
“It’s always a very interesting dynamic when you have more than one child in your family,” says Spencer. “One of my nieces is a total saver, so she saves the money she gets for her birthday, while the other one is like, ‘I’m going to go and buy art supplies.'”
They are both being taught the same principles about money, yet they behave differently. However, the spender “is noticing that her sister has more money than her, and then she says, ‘Maybe I’ll put a little more in savings.'” Spencer cautions against topping up the spender’s account at the same rate as her saver sibling. “It’s about the balance of free will and choice,” she explains. “It’s like, ‘Okay, you need to go and make some different choices.’ This is life. And I think that’s really quite powerful.
“These kinds of choices and trade-offs are things that adults have to evaluate every day, right?” She continues. ,People For example, starting at work, they might want to start saving for a house, but we want them to save for a pension and [they’re thinking]’Do I want to buy this new item of clothing, or do I want to save up for the holidays?’ We all are always making these transactions without thinking, so it is quite beneficial to teach children the basics first.