University tuition fees, first car, a deposit on a house. These are all massive financial hurdles for any young person to overcome. And to do it many are going to need a little help from mum and dad or even gran and granddad.
Encouraging kids to save and parents to put money aside was the big idea behind the introduction of Junior Individual Savings Accounts last November. Jisas replaced child trust funds – under which all babies born in the UK received a gift of money to save from the government – and allow up to £3,600 each year to be saved or invested tax free for the child to access when they reach 18.
As there first anniversary approaches according to the main players in the Jisa industry the numbers taking up the chance to save has been desperately disappointing: "If you look at the raw data the numbers opening Jisas are not impressive. An estimated 800,000 babies are born in the UK each year but only 72,000 Jisas are opened, according to the most recent HM Revenue & Customs figures. Many of these are in the name of older children rather than babies. This is a very slow start," says Kate Moore, the head of marketing at Family Investments, one of the country's biggest providers of Jisas and child trust funds.
A lack of support from the Government and the big banks, which have been late launching their own product ranges, seems to lie at the heart of the malaise surrounding Jisas. "There are multiple reasons; a lack of public awareness and understanding over who qualifies for them are two. In addition, parents do not want to give teenagers control of a big pot of money," says Yvonne Goodwin, the managing director of Yvonne Goodwin wealth management.
This is a point echoed by Patrick Connelly of AWD Chase de Vere who sees access at 18 as the main drawback: "This easy access puts many people off saving larger sums for fear that 'little Johnny's' education fund may be blown on fast cars and foreign holidays."
Also it seems, in hard-pressed Britain, parents are forgoing saving for their kids in favour of paying for the here and now. "I imagine that in many households saving for some point 15, 10 or even five years in the future is not a priority and I can sort of understand it.
"When I draw up a list of priorities for clients, I first look to take care of the individual and only then do I look at providing savings for the children – after all they will probably get an inheritance – as a result Jisas are low down the list of financial to dos," says Tim Stalkartt the head of financial planning at Bestinvest said.
But the relatively tiny numbers of people using Jisas compares unfavourably with the predecessor the child trust funds."About one in four child trust funds received a top up payment from families which means around 200,000 accounts a year were added too. Jisas – because they have to be actively opened by individual families, unlike CTFs, the numbers saving is far lower," Ms Moore adds.
However, Family Investments' research shows that the average amount saved in a Jisa is far higher than is the case with CTFs, fuelling fears that what has been constructed with Jisas is yet another middle-class tax break to go alongside Self Invested Personal Pensions and Stakeholder Pensions.
"Anecdotally it seems that a lot of the accounts are being opened in the names of older children – who perhaps didn't benefit from CTFs. Our impression is that it is people who have an independent financial adviser in place who are being directed towards Jisas, which is a relatively small number of probably more affluent individuals," Ms Moore adds.
But according to Mr Connelly those parents who are ignoring Jisas are missing a trick: "Jisas are considerably superior to child trust funds, because even though they don't benefit from an initial government contribution, there is a much wider and better range of investment options available."
IFAs such as Bestinvest and Hargreaves Lansdown offer access to potentially thousands of funds, while there are also a range of simple savings accounts. However, to date the overwhelming majority of investors have stuck to cash savings, with Nationwide, in particular picking up a large market share, perhaps as high as 40 per cent.
"Unless the child is near to age 18 I'd say that cash in the current market is just about the worst place to be invested. You are in effect guaranteeing that you will lose money.
"Over the longer term, investments in equities should outperform cash and have a chance of beating inflation, which in turn should help ensure that the Jisa at maturity is enough to make a real difference," Mr Stalkartt added.
Regardless of whether money should be placed in a cash account or a stockmarket fund it seems that the overwhelming challenge facing Jisas at the moment is getting people to understand what they are and open one in the first place.
With the Government committing no money to advertising Jisas and many big banks choosing to either ignore them or to not push them this is proving an uphill struggle. And this may become even tougher when rules come in banning financial advisers from accepting commission in 2013 which is already leading to many advisers leaving the industry.
"Against this backdrop, we really need the Government to take a lead in raising awareness of Jisas, after all it is their baby," Ms Moore said.Reuse content