A financial gift could be for life, not just for Christmas. While it may not draw the same excited gasps as the latest Nintendo, it may have more longevity.
Here are some of the best financial gifts you could give this Christmas.
JISA or even a pension
Plenty of parents and grandparents will make cash gifts this year, which will probably be spent on, depending on the age of the child, soft toys, clothes, or games console. That’s fine, but other options may be to put some of that cash towards a Junior ISA (JISA) or even a pension.
The recipient may not be thrilled today, but they may thank you later. Currently, the annual JISA allowance is £9,000. Parents can contribute and manage these directly, although grandparents and other family members or friends will need to go via the parent to contribute.
A child’s pension could provide even longer future planning. You can put up to £2,880 into a child’s pension for the 2024/25 tax year (assuming they have no income of their own) – and anyone can contribute, including parents, grandparents, godparents or friends.
You’ll get 20% in tax relief from the Government, adding up to £720 to the annual contribution, but the real power is in the compound growth. For example, if you put in the full amount of £3,600 each year, and that accumulates 5% compound interest, then it could be worth approximately £116,000 by age 18*.
Using the same method as above, their pot could be worth £1.43 million by their 60thbirthday*. It may be too late for a thank you letter, but there is no doubt your child would be extremely grateful!
* Please note: This is not guaranteed and will depend on a variety of factors, such as charges and investment performance. Please contact your Financial Planner to discuss this further.
University fees
Everyone has a £3,000 annual gift allowance (in the 2024/2025 tax year). Putting some of this money towards university fees could be a thoughtful Christmas gift. Not only does it take money out of the inheritance tax net, it saves them potentially expensive repayments.
The maximum tuition fee will increase to £9,535 this year for a standard university course. While most UK students are eligible for tuition fee and maintenance loans, these are repaid at expensive and unpredictable rates.
The headline student loan interest rate increases in line with the Retail Prices Index (RPI), and the temporary ‘Prevailing Market Rate’ cap. As of September 2024, it stands at 7.3% and changes every year.
This is higher than most mortgage rates and most conventional loan rates and the effect of compounding can be painful. The more you can minimise the loans students need to take, the better.
If the child in question is still under 18, this can be done pre-emptively into a JISA, although the child will have access to the money at 18 so it will be their choice what to do with the money.
A good financial book
Financial books may not be everyone’s idea of a page-turner, but the best ones can be entertaining and help people manage their finances better.
‘The Psychology of Money’ by Morgan Housel comprises 19 short stories, each exploring different ways people think about money and helps people make better decisions in managing their wealth.
Other popular options include A Random Walk Down Wall Street: The Best Investment Guide That Money Can Buy’ by Burton G. Malkiel, The World’s Simplest Guide to the Stock Marketby Edward W. Ryan, a crash course on stock market essentials, The Uncomfortable Truth About Money by Paul Podolsky and Rich Dad Poor Dad by Robert T. Kiyosaki.
Should you be able to get your teen to read a book, there are plenty of financial guides out there. The Motley Fool Investment Guide for Teens, by Tom Gardner is a good place to start, as is the Teenager’s Guide to Money, by Jonathan Self
Get them started on an app
If you think a book may be optimistic, consider giving children cash through an app.
Many apps – including Revolut, Go Henry and Starling Bank – now have lessons on basic financial management, with ‘gaming’ features, such as tasks and rewards.
They can be a great way to manage money, and will often allow children to set up designated pots for different expenditure. It may teach them more than handing them a cheque.
*Based on an input of £3,600 per annum x 18 years with a compound interest rate of 5%