• Text size      
  • Send this article to a friend
  • Print this article

Presents of real value for Christmases of the future

Gadgets will appear in many children's Christmas stockings this year.

NEST EGG: Charles Brister and his partner Emma-Jane have found a Bank of Scotland account for their daughter Holly. Picture: Colin Templeton
NEST EGG: Charles Brister and his partner Emma-Jane have found a Bank of Scotland account for their daughter Holly. Picture: Colin Templeton

Parents expect to spend an average of £243 each on tech gifts according to a survey by price comparison site uSwitch.com. Tablets followed by video games are the two most wanted presents while basic mobile phones are already passé, being cited as the least popular tech gift this Christmas. But one gift which is never likely to become passé is cash, providing it is invested wisely.

In the past premium bonds used to be the classic financial gift for children and it is still possible for parents, guardians, grandparents and great grandparents to invest in the bonds on behalf of under-16s. Nowadays they can be bought online. The minimum purchase is £100. The chances of a youngster winning a significant prize are slim, while the real value of the gift itself will be eroded by inflation.

Giving children a small amount of money to put in a building society or bank savings account is a good way of teaching them the nuts and bolts of basic money management. Bank of Scotland offers 3% on its Young Saver account and Nationwide 2.1% on its Smart Saver account for children. RBS's new First Saver account pays 1% but offers an educational app and website. But there are some children's accounts which are best avoided such as Clydesdale's Jumpstart Savers, paying a Scrooge-like 0.1% on amounts up to £250.

For longer term saving which provides the prospect of some capital growth, putting money into shares on a child's behalf has historically produced the best results. Positive results are not guaranteed but over terms of 10 years or more there is time to ride out the stock market fluctuations. This can be done via a Junior ISA, although these accounts are inflexible and provide no tax advantages unless the parent who is giving the money is a higher rate taxpayer.

Another alternative is a child's friendly society plan. Scottish Friendly, for example, offers 'flexible' endowment savings plans for children linked to an index tracker fund which follows the performance of all the shares quoted on the UK stock market. The attraction of these plans is that you can invest as little as £15 per month. However, you will have to pay for life insurance that may not be required and you are normally committed to save for at least 10 years.

If you can afford to save a little more or would prefer to make ad hoc lump sum payments, a better option may be an investment trust savings plan. A lump sum investment of £1000 made 18 years ago in the average investment company would now be worth £4240. However, you don't have to invest that much because you can start with as little as £100 in a Baillie Gifford trust or £150 at Aberdeen Asset Management.

Annabel Brodie-Smith at the Association of Investment Companies (AIC) says these schemes are popular among adults wishing to create nest eggs for children when they grow up. She says: "We are all aware of the limited shelf life of some presents that are opened and quickly forgotten. So it's perhaps not surprising that some people want to make a more lasting contribution to their child's savings."

However, adults need to be wary of the charges on some investment trust children's saving schemes if they only want to invest a modest amount. Putting £100 into a scheme such as Alliance Trust Savings First Steps children's plan which has an annual charge of £40 would not make sense as the capital would soon be eroded. F&C and Witan also levy annual charges on their children's plans of £25 and £30 respectively.

Fortunately some groups such as Aberdeen and Baillie Gifford offer children's savings plans at no extra cost. Between them, they offer a wide range of investments from specialist trusts such as Aberdeen UK Tracker or Aberdeen Asian Smaller Companies to global growth trusts like Scottish Mortgage or Edinburgh Worldwide for investors who want an international spread.

In addition, Baillie Gifford currently has a special offer of a £10 gift card for new investors into its children's savings plan before January 31 2014.

Those adults thinking really long term could even consider setting up a pension for a child, so he or she doesn't necessarily have to work into their 70s. Nicholas Oliver, director of financial planning at stockbrokers Brewin Dolphin points out that a pension can help youngsters onto the career ladder as well as giving them a retirement nest egg.

He says: "Putting £ 300 a month into a (grand) child pension not only will likely turn them into pension millionaires when they retire, but during their working careers, they can use their fund (to invest in) commercial property, even if it is linked to their business. This is useful for future lawyers, vets, plumbers and farmers - helpful for a debt-laden generation."

More modest investments can be made in pension schemes for children, though it may be some time before they recognise the value of this particular gift.

Contextual targeting label: 
Finance

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis.
If you're a relatively new user then your comments will be reviewed before publication and if we know you well and trust you then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

199869