Is it really this easy to create rich children (or at least very well off)??

NoMoneyNoWorries

Say I'm 30 years old. and I have lived my 20's and I'm not broke and have no debt.

So say now I have a child - the minute this child has a birth certificate I make a stocks and shares JISA for the sprog.

Now a JISA limit is £9000 per year ( £750 p/m)

£750 per month in the stock market returning 7% is is £320K after 18 years.

Now here is the IMPORTANT bit

Your child officially STAYS at home until 30

They now create their own adult stocks and shares ISA - transfer the JISA which terminates at 18 - get even a minimum wage job - which will give them a take home pay of at least £1500 and the child now takeover paying £1000 into their S&S ISA for the next 12 years (from age 18 to 30). -

After all that your child will have over £900000 (nine hundred thousand pounds).

That's their house sorted (in cash) and they can start a family,etc,etc

If they take £500000 from their ISA leaving $400000 or so - then without contributing another penny that £400000 will grow in the next 30 years (age 60 ish) to about £3000000 (three million)

Retirement sorted.

silvercar

Not everyone will give £9000 per year to each child's ISA. You have to be reasonably well off parents to do that.

Once they move out, how are they affording to run a home and have a family on minimum wage?

eskbanker

That's a pretty simplistic view but yes, regularly investing significant sums over very long periods, coupled with compounded growth, will of course deliver seductive-sounding numbers at the end.

Apart from sustainable access to those sort of amounts, the other main flaw in the concept is inflation, which reduces real-terms value of that money significantly over the long term, so even if 7% gross growth is achievable, the net position won't be anything like as favourable…

NoMoneyNoWorries

I knew it was too good to be true..

El_Torro

Putting £750 in a child's JISA from when they are born until they are 18 is a pretty big commitment in itself. Especially considering that many families have more than 1 child and even if it is a 1 child family there are many other commitments that a young family has to pay for.

£320k after 18 years sounds nice, but that is a nominal figure. You should be looking at the growth of the investment after inflation, which is closer to 3% than 7%. That knocks your £320k down to £214k.

Your plan also assumes that the child plays ball and thinks of their future retirement. A tall order for many 18 year olds who are suddenly handed over £200k without having worked for it.

Yes, time will grow even a modest investment. I don't think your "easy" scenario is that easy in practice though.

Brie

As others have pointed out it's a lot of money to pay into their account for a long time without fail. Obviously a parent that can do this is rich.

So Sprog grows up in a wealthy environment, everything provided with lots of extras available. And at 18 they are not going to do a gap year or use their ££ to buy a nifty little sports car or designer gadgets? OK maybe they are financially mature and reasonably intelligent. Does rich parent want Sprog to have a minimum wage job down at Tescos? No! They want Sprog to go to uni and get a top notch job in the city doing money spinning type things. And that is expensive as well. I just can't see it happening as you would like.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/6683439/is-it-really-this-easy-to-create-rich-children-or-at-least-very-well-off

Yes, compound interest is amazing. The tricky parts of your example are the annual 7% return and the regular contributions. I started investing 40 years ago and have made regular contributions to my DC pension and other investments. Over that time my annual average return has been almost 10% and I can tell you that it is possible to be mortgage free and have retirement sorted….with time a straight forward investment strategy and some luck.

kermchem

Mum was not able to spend the pension income she was left by Dad. When grandchildren arrived she paid initially £70 and then £100 per month each grandchild into child trust funds, investing in F&C investment trust. Funding stopped after 13 years, total about £14k ish. Reinvesting dividends, adding some bits of birthday money adds to pot. Shares have gone up, down and up. Each twentysomething adult ISA is now close to £100k. Invest in s&s for the long term, pick a diverse global fund and sit back and wait.

HedgehogRulez

inflation is a thing….

Sg28

Yes it really is that easy.

The hard part is being 30 years old, debt free and have £750 a month to stick into your kids savings (£1500 if 2 kids) most new parents find it hard enough to cover the costs of the child on top of the mortgage/rent etc..

But if you are one of the rare well off 30 year olds with £750 a month burning a hole in your pocket then yes its a great idea.

I started my sons JISA when he was 4 hes 10 now and will have a decent sum at 18. I also started a pension for him at the same time which I hope he will take over at 18. That will be his retirement sorted as long as he keeps up the relatively small contributions.

Also one thing to remember is you need to adjust your contributions each year to keep up with inflation.

NoMore

Also one thing to remember is you need to adjust your contributions each year to keep up with inflation.

The original premise was just maxing JISA and then ISA each year, you have now introduced investing outside of those (SIPP perhaps). Yes the more you can invest utlimately the richer they will be, but as you point out it means starting from somebody who has quite a lot of disposable income available anyway so not for the vast majority.