Why Now is the Right Time to Invest for Your Kids
When it comes to parenting, very few decisions are black and white. You want what’s best for your kids, but it’s not always clear how to get there. Luckily, some decisions are easy: getting them to eat fruit and vegetables, teaching them to read, and investing for their future.
Teaching your kids how to invest may sound daunting, but Spring makes it simple. Investing provides ample opportunities to teach your kids the financial lessons they likely won’t learn in school, all while keeping the process simple and easy for you. (As parents ourselves, we know you don’t have time to spare!)
Whether your children are still very young or heading off to university, the right time to start investing for them is Now. In this article, we’ll teach you how to invest for your child, showing them the importance of compound interest and ensuring they have the best possible start for their future.
How do children’s investment accounts work?
Spring’s children’s investment accounts put you in control. We’ll do all the legwork, but you retain full ownership of the accounts, including what gets deposited or withdrawn and when.
Here’s how it works:
Step 1: Spend 15 minutes creating an investment account for the benefit of your child
Step 2: Watch their money grow with our easy-to-access online dashboard
Step 3: Whenever they’re ready (and old enough!), transfer the account to their name
It’s that simple—and the life-changing benefits of investing now for your kids make the decision to invest an easy one.
The benefits of investing for your kids
As your child grows, so will the compound interest on their account. They will reap the future dividends of a fully established global investment portfolio—even if you create their account when they’re too young to read this sentence!
Kids have the luxury of what investment professionals call a ‘long time horizon.’ In the world of investing, time is everything; the longer you stay invested, the more time you have to maximise the benefits of compound interest and let your money grow. Whether you’re investing for your child’s university days, their first home, or an ambitious startup, starting a fund now ensures that the money you set aside for them has plenty of time to grow.
Beyond the obvious benefit of accumulating money for their future, an investment account also pays educational dividends. Looking at their account together over time helps you teach your kids valuable lessons about finance and money management. These valuable life lessons aren’t generally taught in schools (though they should be!).
How much should you invest?
The answer to this question is all relative. The best advice we can give is to invest what you can afford. If you don’t have much money to spare after the bills are paid, that’s ok! Spring makes investing accessible to everyone with a minimum investment of just £100.
This may not sound like it would amount to much, but every little bit helps—and starting early is more important than the amount of money invested. You can top up your child’s fund each month to make the most of pound cost averaging (buying assets at different prices) and compound interest.
To gain the best of compounding—or earning interest on top of your interest—it helps to have larger sums of money and time. Adding just a little each month can add up over the years to an astonishing amount.
For example, let’s say you start with an initial investment of £100, followed by top-ups of £100 per month for 20 years. With a 6% historical return, your child would have *£46,535 after 20 years, even though you would have deposited only £24,000! Those earnings could help them buy their first home, start a business, or provide security for a rainy day.
Is investing for your kids safe?
Keeping your funds safe is a common concern, especially when the market is volatile. But investing is a much more reliable way to secure your children’s financial future than putting money in a traditional savings account.
Putting money in a savings account is much like sticking it under your mattress. Yes, it will likely stay safe, but it won’t grow much while it’s there. Over the last decade and until very recently, set interest rates for savings accounts were nearly zero. Even now, you must have a sizable sum to get a reasonable interest rate from your bank. Let’s imagine that your bank is offering 2% interest on savings. With inflation close to 11%, that still leaves you out of pocket for the difference year on year.
By contrast, the average annual return for the FTSE 100 is 6.8%. While the FTSE 100 is still relatively young, the S&P 500 has averaged about the same over the last 150 years. While we do see market dips during volatile periods, we also tend to see the highest growth after periods of the greatest challenge.
Savings accounts cannot hope to catch up to the magical effect of compound interest over a long time horizon.
Curious about our performance figures? Check our website to get a flavour of what your money could be returning, month on month and year on year.
Best practices for transferring funds to your kids
You can grant your children access to their account by adding their name when you set it up. This is a fun way to watch their money grow together over time. When they are 18 or older, and when they have your permission, we can transfer the account to them so they assume ownership.
How and when to grant your kids access to their account can be a big decision to make. It’s best to start with a time frame or goal in mind. Their first withdrawals may be for something like a car or university fees—but if there’s money left over, don’t just withdraw the lot! Instead, allow it to build upon itself again for the next milestone. Remember: more time in the market yields more growth over the long term.
Why invest with Spring?
With Spring, you can set aside funds for your child’s future in an investment portfolio, giving that money exposure to global markets over a long time horizon. If you aren’t sure ‘how’ to invest, don’t worry—we’ve put together a robust range of portfolios. Our onboarding questionnaire makes it easy to find the one that best suits your goals.
Once you’ve selected a portfolio, all you need to do is rest easy and watch your money grow. With an investment portfolio and a long time horizon, you can start with a low minimum investment of just £100, then top up each month to grow your child’s nest egg over time.
Here are just a few of the benefits of investing with Spring:
Easy onboarding: Our application process is fully online, with nothing to sign or post. Creating an investment account only takes about 15 minutes!
Keep an eye on your money: Our purpose-built reporting dashboard works on Apple and Android, so you can check your accounts at any time for daily visibility into your portfolio.
Digital investing with direct human access: We’ve removed human bias from the investment process with an expert investment engine—but our team are always here to help guide you and answer questions! Pop into our Jersey office for a chat, or get in touch by message or phone.
At Spring, we understand that investing can be overwhelming. We believe that investing is for everyone, so we work hard to cut through the jargon and make investing simple. Create your account to start investing in your children’s future today.
* Past performance is no guarantee of future results, and the value of your investment could go down as well as up.