Giving cash or financial gifts for Christmas can seem like a cop out but it is often the most appreciated present for children.
The key is to make sure your gift is memorable and given in such a way it makes a lasting difference. With that in mind, here’s how to get Christmas money giving right, according to who you’re giving it to.
For a first Christmas
In lieu of a present they will never remember, consider a long-term gift that should make a baby’s future life much brighter.
A Junior SIPP (self-invested personal pension), which is a form of pension, is a very long-term investment, but having pension plans in place before you’re old enough to know what money is can make the working years far easier too.
Although most don’t pay tax, children are still entitled to valuable tax breaks on their pension saving– meaning that the government will add free money to your gift. You can give up to £2,880 in a tax year, and the government will top this up to £3,600.
Sure, this is a slow burn of a present – the gurgling recipient won’t be able to access the money until they reach the minimum pension age, which is currently 55, rising to 57 from 2028 – but potential returns are significant.
Laura Suter, at DIY investment group AJ Bell, says that a single £2,880 contribution could grow to £46,500 by the time they turn 57.
Financial advisors and DIY investment companies can help you set up a Junior SIPP.
You can choose the funds or shares to invest in it – one of the best ways to build wealth over time is to choose a cheap tracker fund or Exchange Traded Fund, so that the money isn’t eaten away by charges.
You can continue to contribute to the SIPP until the child is 18, and the government will continue to add its contributions as well.
For the five-year-old
The cost-of-living crisis means that many families are struggling to put money away for their children as well as pay for day-to-day life.
So if you’re a grandparent, aunt or uncle or want to buy something that will last for a friend’s child, ask if they have a Junior Isa (Jisa) you can contribute to instead of buying a gift.
A Jisa is a long-term proposition for children’s savings. Anything within it grows tax-free and once the child is 18 it becomes a standard Isa and the money will be the property of the grown child.
Jisas have been used to fund driving lessons, university costs, travel or a start to a house deposit.
A recent study from Scottish Friendly shows that 79 per cent of grandparents would be happy to put money into a savings fund instead of buying a gift if the parents asked them to. Of those, 67 per cent would still buy a small present for the child to open on the day.
If the child is five, you’ve still got 13 years before the money can be used at all, so with a long-term view this money can be invested rather than saved. If grandparents put in £50 every Christmas and birthday instead of buying gifts from the age of five, the child could have over £1,800 in the pot at 18, assuming five per cent annual growth.
Start at birth and the total pot will be nearer £3,000. A stocks and shares Jisa can be set up with any of the DIY investment companies, but if you don’t want to pick the funds yourself, so-called robo investors, such as Wealthify, will allow you to open Jisas and manage them with an app and they will pick and invest funds for you.
For the ten-year-old who needs to learn about money
It’s harder than ever for children to learn about how to handle their money. With pocket money no longer paid in cash and so many things that children buy being digital rather than physical, parents need to take a new approach to teach children the value of their money.
At ten, children can’t have a current account with a card, so parents should pick a pre-paid pocket money card they can add to in future months, with teaching functionality built in.
A plastic card under the Christmas tree could be the first step to financial freedom they need and comes with an app so parents can monitor spending and help build a savings habit.
Depending on your own current account, you could even provide one of these without it costing you a penny. From 11 years old, children can have a free bank account with a debit card – and you won’t automatically have access to their internet banking – so this is a great stepping stone.
Parents apply for these pre-paid cards and download a linked app to their phones to control spending.
Free options include the Rooster card, if you have a NatWest, RBS or Ulster Bank card yourself. This has a built-in chore tracker if you want to start linking money paid out to help around the house.
If you bank with Starling, its Kite card is another good free option. If you have a Revolut card you can have a kid’s version for free and pay £4.99 delivery, and Hyperjar has a similar deal.
Alternatives such as Osper and GoHenry come with a monthly fee but plenty of bells and whistles. GoHenry is £3.99 a month but includes in-app financial literacy lessons called Money Missions that could be invaluable as the child becomes financial indepenedent.
For the teen who has everything – but loves to spend
Teenagers find that money slips through their fingers so cash is king – but you can ramp up the excitement by presenting it in a creative form.
An online game that leads to a secret ‘money message’ or a puzzle box full of notes will both ensure that there’s novelty value along with the money a teen is hoping for.
Try Thumble Games to design a video game with a hero that looks just like the recipient. Set the level of challenge and let them play to reveal a secret message that reveals how much you’re putting in their account, or the location of a cash gift. For £4.99 it’s a memorable way to give cash that will be remembered long after it is spent.
Or try a physical version with a money maze puzzle that challenges the recipient to unlock cash or gift cards that are locked inside.
