Should I use Lifetime ISA to save for my young child long term?

Hellsbellshg

I'm trying to work out the best way to save for my 1 year old child. I do not want a standard child ISA because I do not want him to access the money at 18 years old, I'd like to keep control of the money until he is well into his 20's, established in a career and then I'd like him to use the savings as a deposit for a house ideally. I'm 37 this year so wonder if I should use a Lifetime ISA in my name to save for him? When I turn 60 and can access the money he will be about to turn 25 which is what I had in mind timescale wise anyway. What do people think? Is this a crazy idea? Aside from the obvious issue of not being able to access the money earlier without the fees incurred for this, I cannot see any other downside and could make a huge chunk of interest for him with the 25% they offer annually. Any advice or thoughts are welcome. Thanks :-)

Alexland

Yup we are both filling our S&S LISAs each tax year to both gift money to our children in their 20s and also to recycle some into my wife's pension for further government contribution.

We are using JISAs and S&S ISAs for uni costs etc.

Alex

fiestaman87

Hi Hellsbellshg and welcome,

The issue here is the 18th birthday. Legally he can touch the money then and do what he likes with it. I would like to think if I was in that situation now I would teach him financial sense so he doesn't blow the money on his 18th and instead invest it wisely until he's ready to put the deposit down for a house.

It's a tricky one.

I'm holding inheritance in trust for my 2 teenage children till they're 18. I do hope that then they have the sense to spend (or invest) the money wisely and that my drumming in to them to save for the future will pay off.

I wish you the best of luck.

Hellsbellshg

I was thinking a cash lisa??

Alexland

fiestaman87 you need to be 18 to open a LISA so the OP is considering using their LISA and gifting at age 60+.

Hellsbellshg

Fiestaman87 do you think a lifetime cash isa is bad idea? It would pay significant more in interest than child isa and allows me to decide when he’s ready for the money although we wouldn’t be able to access till I’m
60.

Alexland

Hellsbellshg the low interest rates on Cash LISAs make them unsuitable for 20+ years as every year inflation would erode the spending power by a couple of percent. To stand a good chance of achieving a return equal or above inflation you would need to go down the S&S route.

Alex

System

Hellsbellshg wrote: »

Fiestaman87 do you think a lifetime cash isa is bad idea? It would pay significant more in interest than child isa and allows me to decide when he’s ready for the money although we wouldn’t be able to access till I’m
60.

I think the whole idea of controlling what happens with a child's money when they're an adult is a bad idea. It sends two messages:

1) You don't think you can do a good enough job of bringing them up to be responsible and know about personal finance.

2) For their side it demonstrates you have no faith in them and you want to continue to treat them as a child even though they're an adult. How many times as a young adult did you wish your parents would stop treating you as a kid?

And the final point. If you don't manage to put it in something that at least matches inflation you're giving him less. Say there's £10,000 in the fund when they're 18 but you're not intending to give them it until they're 25. You're basically saying "Happy 18th birthday son, here's your £10,000 25th birthday present which will only be worth £9,000 in today's spending power on your 25th birthday."

And who is to say they'll be responsible with money when they're 25? If you've not given them the opportunity earlier in life they're just as likely to blow it on crap at 25 as they are at 18. And then what, you decide at 25 they're still not responsible and keep it for another 5, 10, 20, 30 years? What if he decides he doesn't want to buy a house? After all in the EU the UK is a bit of an anomaly when it comes to home ownership, much of the rest of the EU renting is commonplace. And what if he doesn't have a career as well? Does he forfeit that money? And assuming you put it in a Lifetime ISA in his name and he doesn't buy a house not only will he not get it in his 20s, he may not actually get it until retirement age at which point that £10,000 could have the equivalent of £1,000 spending power when they were 18.

It is one of those things that seems to be a good idea to a lot of people but in fact is the polar opposite for many reasons if not just damaging the relationship between a parent and child as the child gets the message their parents don't trust them.

Hellsbellshg

I wouldn’t have minded them keeping some savings aside for me till I was well into my 20’s and then giving to me when I was thinking more responsibly and long term e.g buying a house, starting a family etc. As opposed to me potentially spending it all on travel, car, etc etc. I’m not looking for criticism about the way and when I’ll give my child the money I’ve saved for him, just the best way to do it with my outlook and preferences. I just want to ensure he can achieve stability as an adult.

Alexland

But its not the child's money if it in the parents LISA? It is a nice gift in their 20s.

fiestaman87

Hellsbellshg,

My advice to you is save as much money as you can in a child ISA and other top paying child savings accounts. As your son approaches 16 or 18 (dependent on the account) go through the options with him including the LSA or Help to Buy ISA.

It's good that you're saving up for him (I wish I could have done so when my children were that age) but always remember who's money it is.

BTW if you already have a mortgage yourself I don't think you would be eligible for either the LSA or Help to Buy ISA.