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Criticism of Junior ISAs is unfair

John Fitzsimons
by Lovemoney Staff John Fitzsimons on 28 May 2012  |  Comments 4 comments

Guest blogger Simon Ellis of Legal & General Investments argues that Junior ISAs are being unfairly damned.

Criticism of Junior ISAs is unfair

Junior ISAs (JISAs) have only been a part of the personal finance landscape for a relatively short period of time.But they've sparked a lot of talk already.

The concept is to create a smaller mirror image of the most successful savings product of the last 20 or so years- the Individual Savings Account. The limits for JISAs are lower than their adult parent version, but the tax treatment is the same, and so is their theoretic attraction.

Plenty of cynicism

After the misfiring Child Trust Fund regime, you would have thought product providers and financial advisers would have hailed a good quality replacement with loud cheers. Indeed, the industry has long whinged at the lack of new tax incentives for saving, and the failure to address lack of education or opportunities to engage with young people.

Sadly, the industry has stated that ‘kids’ won’t be trusted with the amount of money that could be set aside for them over a full 18 years at the maximum allowance of contributions. As if any more than a few people would afford to put £100,000 into a plan for each child?

Advisers and press commentators have latched onto this simplistic moral theme: "Could you have been trusted with over £100,000 at that age?” The oft-quoted prediction then being they’ll blow it all on “drugs, booze, sex and fast cars.”

Good luck to them? Or a simple reflection of wishful thinking if we’d been in that situation?

Money and choices

Today’s children face a wall of tough decisions when they leave education. In spite of popular opinion, I sense most of them will have the mental and emotional wherewithal to cope.

The problem is will they have the money? Money doesn’t make them happy, but it will allow them to make better choices. I suspect parents, grandparents and godparents will seek to do what they can to stash some money away to ease the transition into adulthood.

But what about the children themselves? Our research asked the opinions of six-year-olds from up and down the country, with the results making for some insightful, if entertaining reading. Highlights included four in five (80%) thinking they will own a house before they are 25, while 53% think £10,000 is enough for their first house.

One in five are firm believers that money exists solely they can buy sweets, and frankly, who can blame them? You can see the highlights of the research in this video.

On reaching 18, this generation face a future of debt and a wall of financial challenges. A JISA will give them choices not challenges, funds not debts, an opportunity, not a worry. With a range of opportunities to fall further into debt at every step, we need to be doing everything we can to help our children have at least a fighting chance when it comes to managing their money.

Junior ISAs will not be right for everyone, but as a secure way of putting money aside during childhood, they take a lot of beating. The industry may need some time to fully believe in their merits but I am confident that more of today’s six year olds will be greeted with a JISA pot in 12 years’ time than you might think.

Simon Ellis is managing director of Legal & General Investments

What do you think? Have Junior ISAs been given a raw deal so far? Will you be opening one for your children? Let ua know your thoughts in the comment box below.

More on savings:

The best Junior ISAs

GE Capital Direct: new online savings bank launches

Pensions vs ISAs: how to save for retirement

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Comments (4)

  • SeaBee
    Love rating 15
    SeaBee said

    Perhaps Mr Ellis might start by telling us how much his organisation stands to make from the average Junior ISA.

    Report on 28 May 2012  |  Love thisLove  0 loves
  • The Bank Manager
    Love rating 74
    The Bank Manager said

    I think that a tax-free wrapper for children is an ideal way to start the presentation of a good savings habit to those under 18 and in tandem with good teaching to those children about the value of money by their parents, will go a long way to help them understand to respect it.

    The old saying that money doesn't grow on trees used to spur me on with the Post office account I had as a child, where I put money aside and bought a stamp to go in my book and each page was worth £5.

    I didn't touch that money for years, as I wanted to see it grow - which with inflation and interest rates of those days, it did - but I recall buying a toy car when I was about eight or so, that I wished to have for my collection.

    My Wife and I are instilling the same values in our children and this is easy, by letting them know what money they have and how it's growing, giving them a sense of pride and value in the thoughts for how that might be used after they are 18, in addition to knowing what they have in their instant access accounts now.

    The instant access accounts are the real tell-tale sign, because they don't raid these accounts to fritter their money away, instead they ask my Wife and I if it will be OK to purchase a specific item.

    Perhaps another way they have learned the value of money, is the daily purchase of their school meals. They have a topped-up card into which we fund a given sum each month, they go to the lunch hall and they buy what they need to eat, knowing from their receipt, what the remaining balance they have left for that month after their purchase.

    The best part about this, is that they chat about what they've had at school that day with each other and to hear them discuss the offers available, e.g. "I bought a bottle of milk, a starter and a main for £2.50 as it was on a ‘meal deal’, as if I'd only bought the starter and the main, it would have been 10 pence less, but the milk costs 30 pence, so it was the better deal", allows my Wife and I to know they are starting to budget. This is good.

    As long as we're aware they know about the value of money, then that is fine when it comes to the JISA money. Perhaps for those parents that don't discuss such subjects with their kids and simply give them what they want, when they want, they will have more to worry about when their children reach 18?

    Report on 04 June 2012  |  Love thisLove  0 loves
  • L&GI
    Love rating 0
    L&GI said

    Mr Ellis replied to SeaBee "For Legal & General Investments the Junior ISA product enables us to offer another investment solution for our customers. There is a considerable period of time (over 15 years) before we will generate a financial profit from the Junior ISA. However, in the meantime we aim to build a better understanding of, and relationship with, a future generation of investors."

    Report on 06 June 2012  |  Love thisLove  0 loves
  • Dividend Income Investor.com
    Love rating 0
    Dividend Income Investor.com said

    Junior ISAs are an excellent product for children to get involved in saving and investing.

    The problem is many parents themselves struggle how to make the 'best' investments, and, also may not have themselves 'good' money, savings and investing habits, and therefore are unlikely to be able to transfer these essential habits to their children setting them up for financial distress in the future.

    I have an introductory eBook written about this, on how you can help your children to accumulate wealth and how it is not difficult to do this, but am not allowed to mention the title here

    Report on 13 December 2012  |  Love thisLove  0 loves

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