Tips for saving for your children

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Make a long-term plan

Saving for children is typically a long-term endevour and this should impact your savings decisions. You can put a plan in place that takes the swings of the market into account and weathers the storms, since you are hopefully in no rush to liquidate the assets.  

Don´t invest it all at once

One common way of saving for children is by making monthly investments, e.g monthly purchases of stocks or index fund shares.. Even if you do happen to have a big lump sum to invest, there are certain benefits of gradually using the lump sum to make monthly investments instead of making all the purchases on the same day. Of course, there are exceptions to this recommendation, so you need to take your particular situation into account.

Don´t put all eggs in one basket

It is a good idea to spread risk by creating a varied investment portfolio that includes different asset types. Ideally, also strive for variation within each asset type, when it comes to factors such as industry, geography and assessed risk-level.

Avoid leverage

Some investment platforms online offer leveraged trading. This is very risky, since it involves trading with borrowed money. With leverage, you can end up losing more than you own. If you put £500 into the account and use leverage to invest a total of £1,500 you can end up losing your £500 AND owe the platform £1,000 that must be repaid. Therefore, leveraged trades are generally not recommended unless you really know what you´re doing and are both willing and financally able to take on this type of risk.

Legal ownership and control

Always check applicable laws before you decide how to safe for your children. The legal frameworks differ around the globe, so it is not possible to give advice that will fit anyone.

Some parents open a savings account in their own name to save for their children. This comes with both pros and cons. Here are a few questions that are good to keep in mind when you make this decision.

  • Do I want the child´s other parent to have access to the account?
  • If the account is in the child´s name, will the child automatically gain legal control over the account when they reach the age of maturity? Is this what I want, or would I prefer to delay this date until they are older?
  • If the account is in the child´s name and the child incur debts, can funds
    from the account be confiscated by the autorithes to pay the debts? If the account is in the parent´s or parents´ name or names, and any of them incur debts, can funds from the account be confiscated by the autorithes to pay the debts? Remember that debts can be incurred unwillingly, e.g. because of court-ordered payment of damages. 
  • If the account is in the name of a parent, and the parent dies, how will the money be inherited? Is there a will in place to handle this?
  • How will ownership of the account impact taxes?