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Intro
Are British parents starting to realise the importance of being on top of their finances? Inflation rate jumped to a 30-year high of 5.4%. Then there's the energy bill crisis. And let's not forget the impending increase of NI contributions in April.
If you're a new parent, here are the 5 financial basics that you need to know to be on top of your family finances.
Table of contents:
1. Child benefits
2. Tax-free childcare
3. 15/30 hours free childcare
4. Investing for your child's future
5. Wills
What am I entitled to?
Do you hear the clock ticking? Well it must be time to make some smart decisions for your family and children’s future.
Bear in mind we can’t assure you that you will be able to claim all the things we have listed. But we hope to shed some light on some of these matters.
Child benefits
If you're a parent or a guardian, you will receive these funds directly from the government.
You’re eligible for the full allowance if you meet these criteria:
- you’re responsible for a child under 16 years old or 20 if they are still in full-time education or training;
- you and your partner earn less than £50k per year each. Also, if one of you is on the highest income and earns more than £50k, but less than £60k, you’ll still be eligible for some of the allowance.
Potential benefit: £1,099 (per year) for your first child. And £728 for each additional child (based on 2021/22 allowances).
You should also be aware that those rates will go up in April 2022.
Find out more on the government website.
You can apply by filling out your claim on child benefits.
Tax-free childcare
This is a government help which can help you save up 20% on your total bill. The process is very simple. All you have to do is head over to the government website and apply. Once your account is set up, you can use it to pay your nursery, nanny or even school clubs and sports activities.
For every £8 you pay into your account, the government will pay in £2. Let’s say you have to pay £500. You will only pay £400. While the government will top up the remaining £100.
You can save up to £500 every three months.
On top of that, if your little one has a disability, you can get up £1000 every three months or a total of £4000 a year.
How do I know if I’m entitled to tax-free childcare?
You’re eligible for tax-free childcare if:
- You’re working, on shared paternal, maternity, paternity or adoption leave
- You and your partner will earn the National Minimum Wage or Living Wage for 16 hours a week over the next 3 months
- Both yours and your partner's income is below £100k (including expected bonuses). To find out more, read on the government website for tax-free childcare.
- Your child is 11 or under
- You (or your partner) have a National Insurance number and you either hold a British or Irish citizenship, have acquired a settled or pre-settled status, or permission to public funds.
Potential benefit: £2,000 per year!
Setting up tax-free childcare online only takes you 20 minutes - apply here.
What you can do on a daily basis
Time flies and children grow up fast. Depending on the goals you set to achieve for their future, it can get quite expensive. That's why you should make sure you think through all the expenses involved in:
- school fees 📚
- uni fees 🎓
- their first car 🚗
- or first home deposit 🏡
Check out our full guide on saving and investing for your children's future.
If you’re in a rush, we have listed two of the most popular ways that you can opt for below.
Junior ISAs
A Junior ISA is a tax-free way to save or invest for children. This means you don’t need to pay any:
- income tax on the interest you earn from your savings
- dividend tax on any dividends you receive from stocks & shares
- capital gains tax on any profit you make on your savings or investments
There are two types of Junior ISAs:
- Cash Junior ISA - savings
- Stocks and Shares Junior iSA - investing
Cash Junior ISA
A Cash Junior ISA is risk-free way to save your money. The funds sit in a bank account, similarly to any other savings account and is usually covered by FSCS up to £85k.
The interest rate varies around 1.6% to 2.4%. This is a better rate than your average savings account. However the rate is still low and it may not help you reach your long term goals when saving for your child.
Especially for the first 18 years of your child’s life.
Stock and Shares Junior ISA
On the other hand, with a Stock and Shares Junior ISA, your money will be invested in the stock market. So while it does involve more risk, you should also be aware that the stock market tends to outperform cash over the long term. Which means you can reap the benefits of higher returns than a Cash Junior ISA.
However, unlike a Cash ISA you may not get back the money which you have invested and the value of the money invested can go down as well as up.
Can I open both a Cash and Stocks & Shares Junior ISA accounts for my child?
Yes. You can open one or both a Cash and Stocks & Shares Junior ISAs accounts. But you should know that there’s an annual limit of the money you can deposit across the two.
The annual Junior ISA allowance is currently £9,000 for 21/22 (subject to change on a yearly basis).
Can I withdraw the money at any point?
No. The money is legally your child’s and it’s locked in until their 18 birthday. At that point, your child is free to use those funds in whichever way they prefer. That is why these type of investments work best for long term goals. They can be an option when trying to set your kids’ up for financial freedom.
Where can I open a Junior ISA account?
You can open a Junior ISA account with most high street banks or also with a digital wealth platform like ours.
Find out more about Junior ISAs.
