But not all will blow their Christmas cash on furry creatures. Research carried out by Fleming Asset Management shows that over a fifth resist the temptation and save up their cash gifts instead.
There is a big increase in the variety of savings options available for children. Some are geared towards long-term investment while others provide instant-access accounts that will enable the next generation to learn about money management from a young age.
The NatWest piggy banks that were evident on many a child's window sill in the 1980s (though not mine, as I only had a Post Office account, which I thought quite boring in comparison) have been replaced by all sorts of different gifts and savings incentives. T-shirts, vouchers, rucksacks and calculators are among the freebies given out by the banks to their youngest customers.
All the main high street banks now tailor accounts specifically for children, as do most of the country's building societies.
Of the banks, NatWest's Young Saver account offers the highest rate of interest at 4.2 per cent, with Barclays' Junior BarclayPlus only paying 1.5 per cent for the first pounds 99 and 2.5 per cent for pounds 250 and above.
Building societies tend to offer higher rates of interest than the banks. Smart 2 Save from Nationwide comes out top with 6.4 per cent gross, with Bradford and Bingley's Kidzone and Coventry Building Society's Interest Zone runners up. Both have interest rates at an effective 6.25 per cent.
One advantage of an instant-access account is that it does not require a huge deposit to open one. They can often be started with a deposit of as little as pounds 1, making them the perfect place for children to save their pocket money.
Most parents regard learning about the value of money and how to look after it as being an important part of their child's growing-up process. In addition to an instant-access account, many choose to take out longer- term investment policies for their children. These can be geared to providing a nest egg either for university, a first car or a deposit towards a flat. For such an investment, bonds, unit trusts and investment trusts provide better rates of return.
Bonds lock money away for between one and five years but tend to pay higher rates of interest than instant-access accounts. A four-year Savings Bond with the Abbey National will earn interest of 7 per cent. National Savings only offers 5.5 per cent on its Children's Bond, although the advantage of such a policy is that the interest is tax-free.
Tax will be deducted from unit and investment trusts but this can be reclaimed. The tax-free personal allowance for children in the 1999/2000 tax year is pounds 4,335, and parents can make gifts of money up to pounds 200 before their child can be eligible for taxation.
In order to reclaim tax on behalf of your child you will need to complete an R40 form from the Inland Revenue.
"For children whose parents decide to make a long-term investment, the final plot could well be worth the wait," says Debbie Cash, a manager at Fleming Asset Management. "If pounds 100 a year had been invested in the stock market 21 years ago it would now be worth an impressive pounds 14,101. If the same amount of money had been invested in a building society account, it would now be worth only pounds 4,358."
Flemings is offering a Share Plan where parents can buy into the world's stock market on behalf of their children in the form of an investment trust. For this policy, there is a minimum lump sum investment of pounds 400 and minimum monthly contributions of pounds 40.
Alternatively, you could opt for a unit trust for your child. M&G provides such a policy. The units will belong to the parent until the child reaches the age of 14, when they can be transferred to the child's own name. The minimum monthly payment is only pounds 10, a figure that a lot of parents will find affordable and which can build up to a substantial amount over the medium to longer term.
M&G appears to have cleaned up its act. In the past, its poor performance has been heavily criticised. But BEST Investment has just added M&G to its recommendations list.
n Contacts: Fleming Asset Management: 0800 403030; NatWest: 0800 505050; Barclays: 01604 234234; Nationwide BS: 0500 302010; Bradford & Bingley BS: 01274 555332; Coventry BS: 0845-766 5522; Abbey National: 0800 100801; M&G 0800 210200; BEST Investment 0990 112255Reuse content