Take a guess at the Number 1 present people want this Christmas? According to a poll of more than 2,000 adults across the UK conducted by YouGov, 27% said they wanted money or gift cards. Clothing came second and experiences third, while perfume and alcoholic gifts tied for fourth.
Of course, some parents and grandparents prefer to give more personal gifts, and that’s fine. But it’s worth remembering that teenagers and young adults in particular tend to prefer monetary gifts to anything else.
So, if you’re planning to give financial gifts this year, what should you bear in mind? ROBIN POWELL asked RockWealth Brighton founder STEVEN WILLIAMS for his top tips.
RP: Steven, what are your thoughts on gift cards and vouchers?
SW: Personally I would avoid giving gift cards linked to one shop or business. Gift cards and vouchers are not covered by the Financial Services Compensation Scheme, so if the firm goes bust you lose out. Far better to give cash or, if you’re putting it inside a card and sending it in the post, write a cheque.
What are the best options if you want to help a child to learn about money and saving?
The best thing, in my view, is to buy them a book. Ideally, children should learn about money, saving and investing in school, but generally they don’t. There are some really good books out there for children of all ages. There are several board games too that help children learn about money. And, of course, you can always buy a younger child a piggy bank. But don’t just give it to them; help them to set a savings goal that is achievable and to enjoy the whole process of saving money.
And what should you do if you want to put money away for them?
The best way to do it is to save or invest on their behalf in a Junior ISA or JISA. You’re allowed to put up to £9,000 in a JISA in the current tax year. The money in the account belongs to the child, but unless there are exceptional circumstances they can’t withdraw it until they turn 18.
Many teenagers already have money in Child Trust Funds, which were introduced in 2005. What should parents do about those?
The average CTF is worth more than £1,000, but many accounts are holding significantly more. Amazingly enough, research last year by the Association of Financial Mutuals showed that 120,000 funds were still unclaimed, so claim it or lose it! Parents should also bear in mind that many CTFs have high fees and poor returns, in which case the money could be put to much better use. A word of warning though: there are several investment products specifically aimed at the JISA market. But they tend to be quite expensive and are generally best avoided. You’re better off using a simple and low-cost equity index tracker.
What about older children or grandchildren? What can you do for them?
If the child is aged 16 or over they can have a cash ISA or stocks and shares ISA. You can put money into one of each kind of ISA each tax year. There is currently a limit of £9,000 per tax year for a cash ISA or £20,000 for a stocks and shares ISA. If you go for the latter, your best option again is a low-cost index tracker.
People often use the time between Christmas and New Year to sort out their personal finances. Is there anything that they need to be doing in relation to their children and grandchildren?
You’re right, the end of the year is the ideal time for a financial sort-out. You need to have all your essential documents in one place and make sure your next of kin know where to find them if anything happens to you. You should also have digital copies of everything important. Crucially, of course, you must have a will and keep it up to date. Also, if you have a defined contribution pension scheme, you must ensure that you’ve clearly expressed your wishes as to whom the beneficiaries should be in the event of your death. It’s very common for people to overlook this and for their offspring to be disadvantaged when they die.
That must be very frustrating. What sort of issues are we talking about?
The most common problems are tax-related. The rules are a minefield, and they do change, so it pays to have a financial planner who is really up to speed on the latest regulation. For example, the 2015 Pension Act introduced significant reforms around the taxation of death benefits and removed previous restrictions on who you can leave your pension to. Members of DC pensions can now nominate any beneficiary, not just financial dependants, and those beneficiaries can take benefits either as a lump sum, an annuity or via their own pension. So, for tax reasons, it might not be the best thing to make your spouse the sole beneficiary of your pension, as usually happened in the past. It’s particularly important to think about this if you’ve divorced or if you’ve remarried and your new spouse has children of their own.
Any other advice for parents and grandparents as Christmas approaches, Steven?
We’re all different and every family has their own traditions and priorities. I know it’s an old cliché, but, important as gifts are, in my experience what young children in particular want most of all is not your presents but your presence. They want to spend time with you, and they want your full attention. So, finish work before Christmas and, if you can afford to do so, don’t even think about it until the new year.
Picture: Nicole Michalou via Pexels
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