Money: Let your baby cut his teeth on shares

Invest child benefit in the market and the cash will roll in, says Harvey Jones
Giving a child pounds 50,000 for his or her 18th birthday sounds like the kind of present re-served for the very rich. But that's the sum you could build up simply by saving, not spending, your child-allowance payments. Even pounds 25,000 should cover university costs, with no extra input from you. Starting a stock market savings scheme at birth should also net a good lump sum towards school fees.

Child benefit is pounds 14.40 a week for an eldest or only child. For subsequent offspring it falls to pounds 9.60 a week, so you would have to "top up" savings for younger children. This money is still tax free. It is paid until children reach19 if they are in full-time education, or 16 if they start work or leave home.

If you can spare the money, it will soon add up. The eldest child will bring in more than pounds 60 a month, or nearly pounds 750 a year. Any others will receive more than pounds 40 a month, or close to pounds 500 a year. Invest this money and the returns will multiply.

Barclays Stockbrokers calculates that if you had invested pounds 9.60 every week on the FT-SE 100 for the last 18 years you would now have pounds 31,297 from the average fund. If you had invested pounds 14.40 you would have pounds 53,401. Returns from the same amounts saved in an average building society account would have been much lower, at pounds 10,631 and pounds 15,272 respectively over the last 18 years.

You should only consider building societies for children's savings if you will need the money in the near future. Specialist children's savings plans also offer low returns. The National Savings Children's Bonus Bond pays just 4.85 per cent tax free.

"If you can tie the money up for five to 10 years you should look at stocks and shares," says Philippa Gee, an independent financial adviser. "You have to decide what level of risk you want to take, but over time the rewards should be much greater."

Investing child benefit each month is a good way into the market."You are staggering the timing of the investment," says Ms Gee, "which is far easier than investing a lump sum where you must get the timing right."

The problem is that many funds set a minimum monthly investment limit, which is often higher than the child benefit level. Ms Gee says: "Many fund managers have a limit of pounds 100 a month, which may force you to go elsewhere. However, you should avoid choosing a fund just because it has a low minimum investment. Performance, the company running the fund and charges should all be taken into account."

Minimum payments vary greatly. Abbey National, Marks & Spencer, Morgan Grenfell and the Woolwich all accept a minimum monthly payment of pounds 25 on their stocks and shares individual savings accounts. Fund giants Fidelity, Jupiter and Newton set a pounds 50 monthly minimum.

Investment house M&G recently cut its monthly investment minimum to pounds 10 for all its products, including ISAs. Someone who had invested that sum every month for the past 16 years in the M&G European Fund would have paid in pounds 1,920 but have a fund worth pounds 7,666.

Around one in three children now go to university at an average cost to their parents of pounds 5,000 a year. To cover this, many parents are setting up investment plans. There are also special stock market savings schemes such as Edinburgh Fund Managers' Saving for Children Plan, which offers 13 different investment trusts from pounds 20 a month. Over the past 10 years it has returned 70 per cent more than the average building society highest- rate account.

The simplest way to invest on the market is through a tracker fund, which mirrors the performance of an index. The FT-SE All Share gives a good spread of shares and there are several cheap funds. For example, Legal & General's index tracker has no initial fee and takes total expenses of 0.55 per cent a year. If you don't follow markets yourself, this is an option you can buy and forget about.

If you are interested in keeping tabs, you could go for an actively managed fund such as one investing in the Far East. Over 18 years this could be an excellent prospect - but do your homework. See an independent financial adviser if you aren't confident about making decisions or, if you're ready to do your own legwork, sign up with a discount broker. BEST Investment offers discounted investments plus advice. Others, like Hargreaves Lansdown and Torquil Clark, offer discounts plus research - but you make your own decisions.

David Holland, executive director with PIFC Benefits Consultants, says you should make use of tax breaks when investing for children - particularly if you pay capital gains tax. "I don't know many children who use their annual CGT exemption of pounds 7,100 but I know plenty of grown-ups who do. Parents can reduce their liability by setting up a Bare trust with the child as beneficiary," he says.

Contact a financial adviser or solicitor before setting up a Bare trust; it is vital to get the wording right to receive tax concessions.

n Contacts: BEST Investment, 0171-321 0100; Edinburgh Fund Managers, 0800 838993; Har-greaves Lansdown, 0117-900 9000; Legal & General, 0800 092 0092; M&G, 0800 210222; National Savings, 0645 645000; Torquil Clark, 01902 570570.