- Investing the full £9,000 Junior ISA allowance each year could bag a child £265,851 by the time they turn 18
- Even investing smaller amounts or less frequently can have a sizeable impact over time
- How switching popular toys such as Squishmallows, Jellycats and Harry Potter Lego sets for an investment of the same value could generate thousands of pounds
Laura Suter, director of personal finance at AJ Bell, comments:
“Parents currently pillaging the toy shops or Amazon for their kid’s Christmas presents should pause and think about whether they should ditch the presents and give them some money instead. Rather than carrying out a supermarket-sweep style dash around the shops before Christmas Day, in the long run kids may prefer cash that goes into an account for them, is invested, and hands them a bumper pot when they reach 18.
“Clearly few kids are going to be happy with zero presents under the tree on the big day and some money in a Junior ISA instead. But parents could think of it as a stocking filler, where they stuff some money into their financial stocking and forgo a couple of presents. Equally for very young children, who are more likely to be interested in the box and wrapping paper than the toy itself, parents could leave the gift giving to grandparents and family and just gift money themselves.
“Whether they’ve been naughty or nice this year, one thing’s guaranteed: money invested for a child grows regardless. Even a low-value contribution could add up over time. For the price of one Squishmallow (which is £20) every year from birth, you could hand your child a pot worth almost £600 by their 18th birthday, assuming it earns 5% investment returns a year after charges. Come Boxing Day, the toy may have already been abandoned but the investments could be growing in value.
“Some popular toys this year are the Glinda and Elphaba singing dolls, from Wicked. But it’s likely these will have been discarded by this time next year. So instead if you put the £70 that the duo cost in an ISA and invested it each year from birth, you’d have £2,068 sitting in their investment account by their 18th birthday – a more welcome present than some long-forgotten dolls.
“Some parents go big for Christmas, but that means the potential investment pot of the future is also bigger. Jellycats are back in a big way, for children young and old, but anyone splashing out on a £200 Christmas tree Jellycat who instead funnelled the money into investments could hand their kid just over £5,900 by their 18th birthday. Jellycats are good, but not that good.
“Harry Potter continues to be perennially popular with kids, and there’s no doubt that the Lego kits will be a big hit this Christmas, but they come with a big price tag. If you bought a smaller gift and instead funnelled the £410 cost of the Hogwarts Castle into investments, you’d be giving your child a pot worth £12,111 by age 18. And I’m sure if you ask the Ghost of Christmas Future what an 18-year-old really wants, it’s not last year’s must-have toy, it’s a financial head start.
“Even a single monetary gift can go much further than most people realise once it’s had time to grow. A one-off £500 present invested when a child is born could be worth £1,203 by the time they reach 18, assuming 5% annual returns after charges. Double that to a £1,000 lump sum and you hand them £2,407 at age 18, far more impactful than most newborn gifts that get outgrown within months.
“For families who are fortunate enough to use the full Junior ISA allowance in a single year, the power of compounding is even clearer. A one-off £9,000 investment grows to more than £21,600 after 18 years. That’s the equivalent of turning a single (very generous) gift into enough money to pay for driving lessons and a car, university costs or even the beginnings of a house deposit.
“But the biggest results come when gifts are made every year, even if they’re relatively small. If you put aside £500 each Christmas instead of splashing out on toys, that pattern of saving builds a pot of almost £15,000 by age 18. Increase the annual gift to £1,000 and you’re giving your child almost £30,000 when they reach adulthood.
“For those able to contribute the full £9,000 each year, the numbers become extraordinary. An annual maxed-out JISA contribution grows to more than £265,000 by the time the child turns 18 – life-changing money.
“And parents don’t need to see this as a solo project, they could get grandparents, friends and family to all contribute to add up to a bigger pot. If everyone got a slightly smaller gift and contributed £10 to the investment pot, it would soon add up.”
