Children receiving junior ISA nest eggs could get up to £8,000 more if their parents chose stocks and shares over cash

• A study of parents with Junior ISAs reveals they are set to pass on an average of just over £11,000 to their children
• But parents surveyed who are investing into a junior stocks and shares ISA expect to have a pot worth £8,000 more than those who are currently saving into cash
• Ahead of their 10-year anniversary, Scottish Friendly has found nearly two-thirds (63%) of all parents are concerned about their children receiving money from their JISA with the biggest fear being how they will spend it

Parents investing for their children in junior stocks and shares ISAs are set to pass on nearly £8,000 more to their children than those saving in cash.

A study by Scottish Friendly and the Centre for Economics and Business Research to mark the 10-year anniversary of Junior ISAs, reveals children whose parents are investing into the stocks and shares version of the popular tax-free savings vehicle for them, currently have an average pot worth £15,300 and are set to receive nearly £19,000 when they turn 18.

Meanwhile, parents saving into cash junior ISAs expect to pass on a considerably lower amount of £11,000 to their children and have an average of £7,400 set aside currently.

The difference in value is largely due to the contrasting returns between the two types of Junior ISA accounts. Analysis shows that a cash junior ISA holder who maxed out their child’s annual ISA allowance every year since 2011 would have built up a pot worth £52,200 after depositing a total of £44,800.

But an individual who maximised their child’s Junior ISA allowance with investments into the MSCI World Index via a stocks and shares JISA would have accrued a total of £84,500 – £32,300 more.

The study also reveals parents’ widespread concern about the money being paid out to their children when they turn 18.

Nearly two-thirds (63%) of parents with a Junior ISA are worried about the children receiving the money with almost one in five (19%) expressing major concerns.

The most common fear (48%) is not knowing what their children will spend the money on, while more than a third (37%) are worried that it could negatively impact their work ethic and nearly one in five (17%) believe it might damage their relationship.

However, despite many parents’ worries when asked what they think their children will do with the money, few expected them to spend it freely on holidays or social events.

The majority thought they would put it towards buying a property, a new car, or to pay for university fees:

1.      Purchase property – 46%

2.      Purchase a car -45%

3.      Pay for university fees – 39%

4.      Accumulate savings – 29%

5.      Pay for a holiday – 19%

6.      Pay down debts – 16%

7.      Pay for social events (e.g. restaurants, pubs, festivals etc) – 15%

Jill Mackay, Head of Marketing at Scottish Friendly, said:

All parents should be encouraged and supported to build up a pot of money for their child, if it’s possible for them to do so. One way to do this is through a Junior ISA, which was introduced in 2011 to replace Child Trust Funds. Setting aside even a relatively small amount of money on a regular basis can soon add up, and doing this for up to 18 years could provide a healthy sum of money.

The important decision for parents to make when it comes to a JISA is whether to save in cash, consider investing, or a bit of both. Although there is never any guarantee and you could get back less than you pay in, over time investing gives you the potential to grow your child’s money faster than saving in a cash account which can offer more security.

Eventually, the time will then come when the child is able to access the money. Giving a chunky sum to an 18-year-old is understandably going to cause some parents to worry. It is very likely that it will be the first time they have ever had access to so much money and most parents will want them to spend it wisely.

But time is on your side, you can talk to them directly about it as it gets closer to being paid. Perhaps you’ll guide them to put some of it into, for example, an adult ISA and suggest they have a little bit of fun with the rest.

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