How I’m making sure my children don’t blow their savings

When my son turned 12, he decided he wanted to buy a bright orange Lamborghini, a real one, not the Lego model he had just built. My daughter decided that a unicorn would be her first significant purchase.

These sort of childhood goals could account for the reason so many parents shy away from opening a Junior Isa. After all, any money saved in the account legally comes under the child’s control at the tender age of 18. I know what I was like at 18, and the idea of my own teenagers taking control of a lump sum without any restrictions was enough to make me balk.

However, at 18 almost 40 per cent of the UK population will take on a loan of about £53,000 with an expectation that they will manage rent, bills and budgeting with zero preparation for how to handle such a large sum of money. This is the main reason that I view the Junior Isa as an invaluable educational tool, rather than a spending time bomb.

It’s not a fringe product. In the 2022-23 UK tax year, about 1.25 million Junior Isas were subscribed to — collectively amounting to £1.5 billion in contributions. What’s more, about 70,000 children had the maximum £9,000 paid into the account that year, a 45 per cent jump on the previous year. Some children even hold six-figure balances. This isn’t about indulgence, it’s about harnessing the power of compounding.

Being someone who has often lamented the lack of formal education in personal finance, I’ve opened up the Junior Isas to the children’s scrutiny. We use it as a practical financial lesson, regularly logging in to see how the portfolio is performing and talking through how short-term dips often lead to long-term gains. My children understand that time is their greatest asset.

To give them skin in the game, I match any contributions they make. I suspect that this approach will mean the kids are less likely to have a lottery-type reaction when they hit 18, and my son has already earmarked some of his savings to pay for his first car (more likely to be a Fiat than a Lambo, but still a milestone for a young person).

Critics may say I’m in danger of them blowing the lot on an inflatable nightclub or some other such nonsense, but I would argue that money management is an important life skill and nothing teaches like “doing”. Besides which, I see little evidence of the Junior Isa being a vehicle for poor decision-making. Indeed, 46 per cent of 18‑year‑olds with matured Junior Isas saved more in the first year, adding an average of £7,012, according to the wealth manager Interactive Investor. Only 31 per cent withdrew funds in the first month — the average amount was just £512. So much for immediate excess.

Even as I write, my son is considering putting 80 per cent of the gift from his grandmother for getting good GCSE results into his Junior Isa. My heart swells with pride when he talks about compounding, and I honestly believe that the account has been an effective channel for shaping their understanding. I hope that by giving them this head start and a stake in their own future, they will understand the value of making their money work hard, instead of working hard for their money.

And for those who think they can’t afford to save for their kids, just £25 a month for 18 years at a return of 8 per cent can compound to more than £12,500. So here’s my message for parents: if you have concerns about your child blowing their Junior Isa at the age of 18, the answer is not to avoid it, it’s to use those formative years to teach them how to grow wealth.

These valuable lessons can demonstrate how small, regular contributions can turn into life-changing sums. Open up the discussion early, set good habits and you will find they are less likely to blow it all when their Junior Isa matures and more likely to use it as a foundation for their future.

This column was originally published by The Times and is available here.