Why investing for your children’s future doesn’t have to cost the earth

We all want to support our children financially, but how can we do so in a way that reflects our (and their) concerns about the world around us? Here Kat Mann, savings and investment specialist from Nutmeg explores this rise in Socially Responsible Investing and how your child’s Junior ISA could make a difference

Tuesday 23 November 2021 09:32

The options available to parents and guardians who want to get their children onto a financial ladder are many and varied – from high street banks and building societies offering children’s bank accounts and cash savings accounts to newer digital offerings that provide debit cards for your children’s pocket money. Setting your children up financially for the future has never come with so much choice.

A shift in thinking

In November 2011, the Junior ISA was launched in the UK to help parents, guardians and family members save and invest for the future of the children in their lives without paying tax on interest or returns (because believe it or not, your children could find themselves with a tax bill if you set them up with the wrong type of savings account). Fast forward a decade, and according to the latest data from HMRC, around one million Junior ISAs (JISAs) were contributed to in 2019/20.

The pandemic has brought the importance of being financially prepared to the forefront of people’s minds. According to recent research carried out by digital wealth manager, Nutmeg, 64 per cent of UK adults are more likely to start investing on behalf of a loved one under 18 than they were before the pandemic, while around a third of parents and guardians who had already opened JISAs for their children said they had done so to shore up their children’s financial future.

But for many, simply providing a financial head-start is no longer the only factor to consider. In the age of Greta Thunberg and with millions of children taking part in global climate change protests, knowing what the money we are putting aside is doing, supporting and funding before our children access it, is becoming increasingly important.

The rise of socially responsible investing

Socially responsible investing (SRI) has continued to grow in popularity in recent years. In 2020, Nutmeg data revealed that SRI was the fastest growing investment style among their new investors. While their 2021 research* revealed that 78 per cent of UK adults surveyed are more likely to opt for a socially responsible JISA than they were before the pandemic, with a fifth saying it is because their child or loved one has expressed an interest in climate change or a similar issue.

Through socially responsible investing, you are able to align your investments with your values, or those of your children by giving your money the chance of making significant environmental and social changes in the world. Socially responsible investments, sometimes referred to as ethical or green, will vary slightly across different providers – so it’s important to do your homework about the approach that is best for you.

How it works

Nutmeg offers a range of 10 managed portfolios suitable for different risk appetites. This means their team of investment experts will build portfolios that match the level of risk you’re comfortable taking for your child – remembering that if you have a longer time frame you can probably take more risk. Nutmeg’s portfolios are scored across a number of different environmental, social and governance factors, which means you can see the CO2 intensity of your portfolio (and how much lower it is than a non-SRI equivalent), the proportion of companies you’re investing in with good gender diversity at board level or companies that provide strong employment benefits.

If you’re investing the current monthly maximum of £750 into a Junior ISA from your child’s first year in a portfolio returning 5.5% annually your child could receive a sum in excess of £275,000 when they turn 18**. So, your child’s Junior ISA has the potential to be a significant financial asset, and deciding to invest in portfolios that place an emphasis on environmental, social and governance factors can have a significant impact on the world your children grow up in.

The financial decisions we make today for the loved ones in our lives who are under 18 have the potential to have a profound impact on the world they bring their children into. And there’s no better time to start, than now.

To find out more about Nutmeg’s JISAs and socially responsible investment options visit nutmeg.com

*Research commissioned by Nutmeg and conducted by Opinium in October 2021  surveying 2000 adults with children or loved ones under the age of 18

**Investment returns: Predicted net returns based on all-time performance of fully managed Nutmeg Portfolio 7. Calculations assume returns are reinvested and are net of fees. Calculation does not take into account inflation. Costs may vary.

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