by Dr Cyra Asher
Families are being financially squeezed more than ever, so it’s important to work together to make the most of your income. Here are a few important considerations.
Never too young for saving
Junior ISAs provide an annual £9,000 deposit limit and can be split between a cash and a stocks and shares ISA. You can also have a Junior SIPP (Self-Invested Personal Pension) for your child and attract tax-relief on the deposits.
Saving early and tax-efficiently can help set your child up for university costs, help with a deposit for their first home or pay for a big purchase like their first car. You can show your children their statements and share the account details with family and friends to give them an opportunity to contribute.
Teaching children about money
Medics Money have done some research and collated some useful tips on teaching kids about money:
- Opportunities to earn: give kids the opportunity to earn their pocket money by doing chores or for achievements (make sure boys and girls have the same earning opportunities)
- Provide relatives and family friends with the kids’ savings accounts details so they can contribute gifts using online banking. Review regularly with your kids so they can see the interest they’ve earned.
- Practice loud budgeting: agree on a budget as a family and let everyone contribute. Treat budget? Aldi middle aisle budget? Decide in advance how much you’re all happy to spend on certain items and practise what you preach: “it’s not in our budget”.
- Use online grocery shopping as a way of eliminating temptation to buy extra items when shopping
- When using physical piggy banks, reward kids for saving and not spending by topping up their savings. You could match the balance or choose a percentage for example.
- Help kids practise splitting pocket money into spend/save/invest. An example is the 50/30/20 rule (50% spending, 30% saving, 20% investing) but there are limitless variations. Assist them in experiencing investing by having a junior stocks and shares ISA.
- Help them understand the difference between needs and wants. You will cover their needs but they will need to learn to cover their wants. Help them achieve this by supporting earning pocket money and shopping second hand.
The value of VAT-conscious shopping
Ensure you take advantage of the following low or zero VAT products:
- Most basic food items such as bread, milk and vegetables
- Many museums, art exhibitions, zoos and performances have cultural exemption from VAT
- Books, nappies, children’s’ clothes, and footwear are all 0% VAT products
- VAT on clothing and shoes can be reduced for people with smaller feet and bodies as children's clothing is exempt from VAT. Since the 0% VAT band is determined by a child's average size at the age of 14, parents of taller children will have to pay more for clothing for a longer period of time. VAT is not applied to shoes for boys up to UK size 6.5 or to shoes for girls up to UK size 3.5. If you want to avoid paying VAT, your bra should not be larger than a 34B.
- Nuts and dried fruit from the baking aisle has 0% VAT whereas the same from the snack aisle attracts 20% VAT
- A shortbread biscuit dipped in chocolate is considered a luxury good and is subject to 20% VAT. However, if you add a coating of caramel, your millionaire's shortbread receives a zero rating since it is now considered a cake.
Buy second hand
Children grow out of clothes and shoes quickly, therefore, it’s easy to get your hands on good quality, hardly used replacements using platforms such as Vinted, Ebay, Facebook Marketplace and Facebook groups. Charity shops often have children’s’ clothes for as little as 50p and many times they are designer items with their tags still on. Buying second hand isn’t just limited to clothes and shoes. You can look for games consoles, games, tech, and toys second hand too.
Managing expectations for presents
Christmas can be the most expensive time of the year for families as there is growing expectation and pressure on parents to give their children the perfect Christmas. Manage expectations early by setting a reasonable budget for Christmas presents and asking friends and family to contribute to the children’s’ savings accounts (described above) and giving something small rather than huge piles of presents.
Income protection, critical illness cover and life insurance
It’s different when you don’t have dependents, but the stakes become much higher when little ones enter the picture. Ensuring that a roof will remain over their heads and their needs will be covered in the event you are unable to work is paramount. We highly recommend speaking to an independent financial adviser and arranging appropriate cover.
Income protection tops up your sick pay while you’re unable to work for any sickness. Critical illness cover pays out a lump sum (usually paying off your mortgage) in the event of a listed critical medical condition. Life insurance is the cheapest cover with a lump sum paid in the event of your death. Whichever option(s) you choose, do discuss whether arranging the pay out into a Trust is beneficial to you.