Economy & Finances
How to afford... Having children
After the initial cooing over the new born baby and the obligatory trip down to the pub to 'wet the baby's head' most parents will start thinking about how the family finances are going to work in light of the new addition to the household.
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There are two main areas to focus on:
1. Ensure as a family you claim every child benefit you are entitled to from the State. This can be done immediately after birth so long as the child's birth is registered.
2. Invest for the future. If there is any spare cash parents should think about investing a little each month into an account for when their child grows up. As little as £10 a month will still add up to a useful sum by the time the child leaves home or goes to college. But we are getting ahead of ourselves, let's return to the issue of what parents are entitled to from the State.
Child benefit
This is a tax-free monthly payment to anyone bringing up a child or young person, it is not affected by income or savings so most people qualify for it.
The payment is currently £18.10 a week for the eldest child and £12.10 a week for each additional child. It is paid until the child is 16 years old. Those looking to claim the benefit should contact HM Revenue & Customs.
Child tax credit
This is means tested, but in theory all families with children can claim Child Tax Credit if their combined income is no more than £58,175 a year (up to £66,350 if you have a child under one). For more information or to make a claim call the Tax Credits helpline on 0845 300 3900.
Child trust funds
Another payment available to all parents is the Child Trust Fund (CTF). It is a long-term tax-free savings and investment account for children born on or after 1 September 2002. The government gives every child a voucher worth at least £250 to start the fund. (Those receiving Child Tax Credit may be entitled to £500). You'll also get an additional payment of £250 once the child reaches seven years of age.
The Child Trust Fund should be a no-brainer for parents - a payment from the government with no strings attached. However, there are thousands of parents who fail to claim their CTF voucher and thereby forfeit the right to choose where it is invested.
Most major banks, building societies and mutuals offer accounts for CTF vouchers. The choices available to parents are:
1. Share Accounts - which means the money is invested in companies on the stockmarket.
2. Stakeholder Accounts - once again the money is invested on the stockmarket but the risks are spread more - once the child is 13, the money is moved to lower-risk investments, so your child's money is safer as they approach 18. (If you don't use the CTF voucher before it expires, HMRC will open a stakeholder account for your child.)
3. Savings Accounts - pure cash accounts so there is no risk to capital. The downside is that interest paid will only keep pace with inflation - so it's a safe but unexciting investment.
Parents should choose what they feel most comfortable with but be aware that Child Trust Funds are long-term investments and historically the stockmarket outperforms cash over longer time periods.
Parents, family members and friends can make contributions to the fund up to an annual limit of £1,200. This limit runs from your child's birthday in one year to their next birthday.
Given that a child cannot invest in an ISA in their own name, Child Trust Funds are one of the most tax-efficient vehicles open in the meantime - over an 18 year period parents could put aside £22,100 for their children and this is not taking into account any tax-free capital gains made over this time.
Children's accounts
Of course CTFs are not the only investment option available to parents looking to invest for their kids.
One popular destination over the years for parents looking to invest for their children has been National Savings accounts.
Children's Bonus Bonds offered from National Savings & Investments offer a fixed rate of interest over five years and the returns are tax free. However there is a £3,000 maximum investment and rates of interest (currently 4.6%) are below the best on offer via Children's Savings Accounts on the high street.
The rates on offer from the high street vary a great deal depending on how long the money is tied up for and how much money is paid into the account but there are a string of accounts offering around 6% currently. Returns are not tax free but there is no £3,000 minimum as with National Savings bonus bonds.
Kids money checklist
* Sort out all child benefit payments in the first weeks after a baby is born.
* Have an account set up for these payments to be paid by direct debit.
* Scour the market for the best deal for your CTF voucher and where possible set up a regular savings plan to add to the investment.
* Don't be fooled by the 'Children' label, many products are marketed to Children when in reality they have no added tax benefits and are no different to other savings products on the market. A Paddington or Rupert Bear pre-fix is often used as a marketing ploy for unit trusts but many of these funds fail to offer anything new and frequently close.
* Free gifts for kids offered as sweeteners are all very well but the bottom line should always be rates of return. A cuddly toy or CD is not a reason to take out one savings plan over another!
1. Ensure as a family you claim every child benefit you are entitled to from the State. This can be done immediately after birth so long as the child's birth is registered.
2. Invest for the future. If there is any spare cash parents should think about investing a little each month into an account for when their child grows up. As little as £10 a month will still add up to a useful sum by the time the child leaves home or goes to college. But we are getting ahead of ourselves, let's return to the issue of what parents are entitled to from the State.
Child benefit
This is a tax-free monthly payment to anyone bringing up a child or young person, it is not affected by income or savings so most people qualify for it.
The payment is currently £18.10 a week for the eldest child and £12.10 a week for each additional child. It is paid until the child is 16 years old. Those looking to claim the benefit should contact HM Revenue & Customs.
Child tax credit
This is means tested, but in theory all families with children can claim Child Tax Credit if their combined income is no more than £58,175 a year (up to £66,350 if you have a child under one). For more information or to make a claim call the Tax Credits helpline on 0845 300 3900.
Child trust funds
Another payment available to all parents is the Child Trust Fund (CTF). It is a long-term tax-free savings and investment account for children born on or after 1 September 2002. The government gives every child a voucher worth at least £250 to start the fund. (Those receiving Child Tax Credit may be entitled to £500). You'll also get an additional payment of £250 once the child reaches seven years of age.
The Child Trust Fund should be a no-brainer for parents - a payment from the government with no strings attached. However, there are thousands of parents who fail to claim their CTF voucher and thereby forfeit the right to choose where it is invested.
Most major banks, building societies and mutuals offer accounts for CTF vouchers. The choices available to parents are:
1. Share Accounts - which means the money is invested in companies on the stockmarket.
2. Stakeholder Accounts - once again the money is invested on the stockmarket but the risks are spread more - once the child is 13, the money is moved to lower-risk investments, so your child's money is safer as they approach 18. (If you don't use the CTF voucher before it expires, HMRC will open a stakeholder account for your child.)
3. Savings Accounts - pure cash accounts so there is no risk to capital. The downside is that interest paid will only keep pace with inflation - so it's a safe but unexciting investment.
Parents should choose what they feel most comfortable with but be aware that Child Trust Funds are long-term investments and historically the stockmarket outperforms cash over longer time periods.
Parents, family members and friends can make contributions to the fund up to an annual limit of £1,200. This limit runs from your child's birthday in one year to their next birthday.
Given that a child cannot invest in an ISA in their own name, Child Trust Funds are one of the most tax-efficient vehicles open in the meantime - over an 18 year period parents could put aside £22,100 for their children and this is not taking into account any tax-free capital gains made over this time.
Children's accounts
Of course CTFs are not the only investment option available to parents looking to invest for their kids.
One popular destination over the years for parents looking to invest for their children has been National Savings accounts.
Children's Bonus Bonds offered from National Savings & Investments offer a fixed rate of interest over five years and the returns are tax free. However there is a £3,000 maximum investment and rates of interest (currently 4.6%) are below the best on offer via Children's Savings Accounts on the high street.
The rates on offer from the high street vary a great deal depending on how long the money is tied up for and how much money is paid into the account but there are a string of accounts offering around 6% currently. Returns are not tax free but there is no £3,000 minimum as with National Savings bonus bonds.
Kids money checklist
* Sort out all child benefit payments in the first weeks after a baby is born.
* Have an account set up for these payments to be paid by direct debit.
* Scour the market for the best deal for your CTF voucher and where possible set up a regular savings plan to add to the investment.
* Don't be fooled by the 'Children' label, many products are marketed to Children when in reality they have no added tax benefits and are no different to other savings products on the market. A Paddington or Rupert Bear pre-fix is often used as a marketing ploy for unit trusts but many of these funds fail to offer anything new and frequently close.
* Free gifts for kids offered as sweeteners are all very well but the bottom line should always be rates of return. A cuddly toy or CD is not a reason to take out one savings plan over another!
Source: AOL Money
