Raising a child to age 18 costs approximately £260,000 for a couple and £290,000 for a single parent, according to the Child Poverty Action Group. And that’s before you consider university fees, house deposits or the myriad other financial hurdles young adults face today.
These figures might feel overwhelming, but there’s good news. Starting early, even with modest amounts, can make a substantial difference to your children’s financial future. Time is your greatest asset when saving for your children, as compound growth works its magic over the years.
This article explores the key considerations for planning your children’s financial future, from defining your goals to choosing appropriate investments and minimising tax. We’ll help you understand the options available and how to balance flexibility with long-term growth.
What are you saving for?
Before choosing any savings vehicle, you need clarity about what you’re trying to achieve.
Different goals require different approaches, timescales and levels of risk.
University costs are a significant concern for many parents. With tuition fees at £9,535 per year and living costs averaging £10,000-£12,000 annually, a three-year degree could cost upwards of £60,000. These figures will likely increase by the time today’s young children reach university age.
House deposits present another substantial challenge. With the average UK first-time buyer needing a deposit of around £68,000, many young adults struggle to get onto the property ladder without family help. Starting to save early could provide your children with this crucial stepping stone.
Other costs to consider include driving lessons and a first car, gap year travel or wedding contributions. Some parents just want to provide financial security, giving their children options and opportunities as they arise.
So, your goals will shape your savings strategy. Short-term objectives like driving lessons need accessible savings, while long-term goals like house deposits can be invested more aggressively for growth. Having clear targets will help you calculate how much to save monthly and choose the most appropriate investment vehicles.
How much flexibility do you need?
Life rarely unfolds exactly as you plan. So, your savings and investments strategy needs to accommodate this reality. The level of flexibility you require will influence which savings options work best for your family.
Consider the potential scenarios where you might need early access to funds. Your child might need private tutoring for crucial exams, specialist medical treatment, or financial support for exceptional talents in sports or the arts. These unexpected opportunities could require substantial funds at short notice.
There’s an inherent tension between maximising the tax benefits and maintaining flexibility. Products like Junior ISAs offer tax-free growth but lock funds away until your child turns 18. Standard savings accounts provide immediate access but might generate taxable interest.
And your family circumstances will likely evolve over the years. Changing jobs, having more children, getting divorced or taking on caring responsibilities could all affect your ability to maintain regular savings or your need to access funds. Building some flexibility into your plan will help you adapt without derailing your long-term savings goals for your children.
The key is finding the right balance. You might combine different savings vehicles, some offering tax efficiency for long-term goals (like ISAs) and others providing instant access for unexpected needs. A flexible approach will help ensure you’re not forced into making difficult choices between your child’s immediate needs and their future security.
Which investments are appropriate?
Selecting suitable investments for your children’s savings fund(s) depends primarily on your timeline and risk tolerance. The longer you have before the funds are needed, the more risk you can potentially afford to take in the pursuit of higher returns.
For short-term goals under five years, cash savings are a prudent choice. While the returns might be modest, they’ll help you avoid the risk of market downturns just when you need to withdraw funds. Premium Bonds, children’s savings accounts or cash ISAs provide security for near-term objectives.
Longer-term goals of ten years or more open equity investment opportunities. Historically, stock market investments have outperformed cash over extended periods, though with greater volatility along the way. A globally diversified portfolio of funds could potentially deliver superior growth for university fees or house deposits.
The principle of pound cost averaging works particularly well for children’s savings. Regular monthly investments help smooth out market volatility by buying more units when prices are low and fewer when they’re high.
When your child is young, you might accept more risk for potentially greater returns. As they approach 16 or 17, gradually shifting towards lower-risk investments can help protect your accumulated gains.
How much control do you want?
One of the most challenging decisions parents face is determining when and how their children should access their savings. The question of control isn’t just about age. It extends to financial responsibility and family dynamics.
Junior ISAs automatically transfer to your child’s control at 18, which might be a concern if you’re worried about their financial maturity. While some 18-year-olds will invest wisely in education or housing, others might be tempted by cars, holidays or just frittering their savings away. There’s no way to prevent access to these savings once they reach the qualifying age.
Keeping their savings in your own name provides you with complete control but might create tax implications for you and your child. Pension contributions for children will lock the funds away until their late 50s, which is perhaps too restrictive.
Trusts offer more nuanced control for larger sums. Discretionary trusts allow you to determine when and how your children receive their funds, although they also involve more complexity and potential tax charges.
Think about how to balance control with independence. You might want to release their funds gradually, perhaps funding university rather than giving a lump sum, then providing a house deposit when they’re ready to buy. A staged approach will allow you to assess their financial maturity while supporting their key life events.
Minimising tax on children’s savings
Tax efficiency can significantly impact your children’s savings growth over time. Understanding the rules will help you maximise every pound saved while staying compliant.
Children have their own personal allowance (£12,570 for 2025/26) and can earn this amount tax-free annually. Junior ISAs allow £9,000 annual contributions that grow free from tax. Both cash and stocks and shares versions are available, and you can transfer between them.
Premium Bonds offer another tax-efficient option. While the prizes are tax-free, the effective return rate is relatively low. However, they’re helpful in teaching children about saving. Each child can hold up to £50,000.
Pensions might seem premature, but they offer extraordinary long-term benefits. You can contribute up to £2,880 annually (£3,600 with tax relief) to a child’s pension. Starting at birth, even modest contributions, could grow to substantial sums by retirement age, thanks to six decades of compound growth.
Gifts from grandparents don’t fall under parental settlement rules, meaning your children can use their own tax allowances on any interest earned. This makes grandparent contributions particularly efficient for cash savings outside ISAs.
Regular gifts from income can also form part of your Inheritance Tax planning. These must be from surplus income, not impact your standard of living, and be part of a regular pattern. Keeping careful records will help you prove these conditions are met.
How can Glenrose Financial Planners help?
Planning for your children’s financial future requires balancing goals, flexibility, growth potential, control and tax efficiency. While the array of options might seem complex, the fundamental principle is simple: start early and save regularly.
Perfect planning isn’t always possible. Your circumstances will change, regulations will evolve, and your children will develop their own aspirations. What matters is taking action now rather than waiting for ideal conditions that may never arrive.
The decisions you make today about your children’s financial future will impact their opportunities for decades to come.
You don’t need to navigate these choices alone. At Glenrose, we help families create tailored savings strategies that align with their values, goals and circumstances.
Our advisers can guide you through the various options, ensuring you maximise tax efficiency while maintaining the right level of control and flexibility. Book a consultation today to discuss how we can help you secure your children’s financial future.