MOST parents want to put some cash aside for their children’s future and there is no shortage of advice on how best to do that.

While much of that focuses on starting to build a nest egg from the moment children are born, Royal London policy director Steve Webb this week highlighted the “hidden advantages” paying into the pension pots of adult children can bring.

Noting that auto-enrolment has brought millions of workers into a pension for the first time, Mr Webb said that many are nevertheless making “very modest contributions”. An additional parental contribution, particularly at the beginning of a working life, could help those workers build up a much more meaningful retirement pot, he said.

“It is a little-known fact that a parent who puts money into their child’s pension could be doing them a favour three times over,” he said.

“First, the recipient will get a boost to their retirement pot, including tax relief at the basic rate.

“Second, recipients who are higher-rate taxpayers can claim higher-rate tax relief on their parents’ contributions, which will increase their disposable income.

“And third, recipients affected by the high-income child benefit charge can see this penalty reduced because of their parents’ generosity.”

Though Mr Webb noted that “not every parent has spare cash to pay into their children’s pensions”, research from over-50s organisation Saga suggests that a large proportion of people in that age group are financially contributing not just to their children’s lives but to their grandchildren’s too.

Having interviewed 2,000 people at the beginning of this year, Saga said that 69 per cent provide financial support to their children, 57% to their grandchildren and 42% to both generations.

While Saga managing director Jeff Bromage said that “many grandparents relish the opportunity to spoil their children and grandchildren”, he also warned that not everybody handing out cash in this way can afford to do so.

“With rising living costs and incomes increasingly squeezed, many grandparents are now being called upon to provide substantial financial support to their wider families,” he said.

“In many cases, in addition to regular cash top-ups, nearly a quarter are providing hands-on support in the form of free childcare.

“As this becomes a growing trend, it is essential that grandparents do not compromise their own finances in order to provide these free handouts.

“We strongly encourage both parents and grandparents to ensure they are in a viable financial situation to offer this help and are not at risk of subsequently leaving themselves vulnerable.”

To avoid such a situation, both parents and grandparents have a role to play in teaching the younger generation about money matters from an early age; doing so increases the likelihood that they will not have to find ways of bailing them out when they are older.

Richard Stone of stockbroker The Share Centre believes that in the absence of formalised financial education parents should talk to their children about money from an early age to help them understand the importance of saving.

“We know learning things early makes us more likely to understand them when we grow up, so it’s absolutely crucial we talk to our children about money and saving when they’re young,” he said.

“Start small and speak often – empower your kids to make decisions about money and saving, offering rewards if they save their pocket money or cash earned from chores.

“You can even talk about investing – tell your children you own a little bit of the companies you shop in every day to spark their interest, or point out famous companies which are doing well or badly.”

Moira O’Neill of investment business Interactive Investor agrees and notes that as research from the Money Advice Service and Cambridge University has shown that money habits are generally formed by the age of seven, it is vital that young children are taught about the value of money as well as how to use it sensibly.

“Whether children are being talked to about money or not, they are likely observing and picking up behaviours and attitudes, which they could take with them through their adult lives,” she said.

To promote good habits, Ms O’Neill recommends parents take action such as getting their children involved in the weekly shop and encouraging them to find the lowest-cost version of everyday products as well as saving up their own coins so they can then pay them into a savings account.

“Bagging up coins is an early introduction to the times tables, which will also help with good money management later down the line,” she said.