Cost of living crisis - 5 tips for building a nest egg for your children

September 23, 2022

Don't let your nest egg suffer during the cost of living crisis

As a parent or grandparent, creating a nest egg for children may be one of your goals. The cost of living crisis might mean your questioning your goals. Can you still put enough aside to build a savings account for them?

Creating a nest egg for children is a common goal. According to a report in FT Adviser, more than 6 in 10 new parents start saving or investing for their newborn. Putting money aside throughout their childhood could mean they can reach milestones easier. Your child could use it to support their education, buy a first home or pay for driving lessons.

If rising inflation is causing you to review your expenses, these five tips could help to keep your nest egg on track.

1. Make nest egg contributions part of your budget

If contributing to a savings account on behalf of your child is important to you, make it part of your budget. Put the savings as an outgoing, alongside your mortgage or utility bills. This will help you to prioritise it.

Another simple step is to arrange a standing order. This means you don’t have to remember to transfer the money each month. A standing order will transfer the sum on a specified date. It means you don’t risk forgetting about the contribution and spend the money on something else.

2. Stick to regular contributions

Even if you need to reduce how much you’re putting away, make regular contributions. Small but frequent contributions can add up to more than you expect. When you’re building up a nest egg, consistency is key.

The research by the FT Adviser found many new parents have intentions of creating a nest egg for their children. Yet only 54% are still making contributions by the time their child reaches secondary school.

Adding £10 a week to your child’s savings account for 18 years adds up to more than £9,000. This sum can give them a helping hand as they become more independent. £10 is less than buying two cups of coffee and a slice of cake from most high street coffee houses.

Another option to consider is using a 'round-up' feature, which many banks now offer. When you buy something on your debit card, your bank rounds up the cost to the nearest pound. the difference is then transferred into a savings account. So, if you purchased a £2.70 coffee, 30p would go to your nest egg. The individual figures are small but combined they can give savings a boost.

3. Make your savings efficient

Considering tax efficiency can help you get the most out of the savings you’re putting aside. If you’re saving on behalf of your child, one option to consider is a Junior ISA (JISA). This provides a tax-efficient way to save or invest. For the 2022/23 tax year, you can add up to £9,000 to a JISA.

One thing to keep in mind with a JISA is that the money will not be accessible until the child is 18. As a result, it’s not the right option if you may want to access the savings sooner. The child will also be able to access the money how they wish once they turn 18. So, it may be a good idea to discuss how they could use the money to reach their goals.

4. Shop around for the best interest rate

While rising prices may put pressure on your budget, it is good news for savers.

The Bank of England (BoE) has already increased its base interest rate several times this year. After more than a decade of very low interest on savings, there are now better options available.

Shop around for an account that’s right for you. Look for a competitive interest rate to make your savings work harder. Even a small difference in the interest rate can have an effect because of the number of years you pay in to a nest egg.

We expect the Bank of England to make further increases to its base interest rate over the coming months. Make sure you're getting the most out of your money. Keep reviewing what interest your savings are earning and look at your other options too.

5. Consider investing

While money held in a savings account earns interest, the rate of inflation is likely higher. In real terms, this means that the value of the savings is falling, as it’ll be able to buy less and less as costs rise. Over the long term, inflation can have a serious effect on the value of your savings.

According to the Bank of England's inflation calculator, £10,000 in a savings account in 2011 would need to have grown to £11,941 to deliver the same value in 2021. It’s very unlikely that interest would have delivered the returns needed to maintain the value of your savings.

If you will be saving over the long term, investing the money could provide a solution. Investments can experience volatility and fall in value but they tend to deliver returns above inflation in the long term. This means the value of your nest egg could grow. Despite this, a report in the Independent found 83% of parents saving for children do so only in cash.

If you’re thinking about investing, it’s vital you consider what level of risk is appropriate for your goals. Investment advice is something we can help with.

Do you have questions about building a nest egg for children?

If making a nest egg for children or grandchildren is important to you, it should form part of your financial plan. We’re here to help you understand what steps you can take to provide your loved ones with financial support and achieve your financial goals. Please contact us to arrange a meeting.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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