Make your child a millionaire by age 38 in three steps: How to invest to boost your chidren's prospects
Parents can make their children millionaires by the time they are 38 by making the most of Junior Isas, cash gifts and stakeholder pensions.
Here we reveal how to set your child on the road to financial success, by using these three straightforward forms of saving.
The caveat is, of course, that you will need plenty of spare cash to do it. But even if you cannot afford to set aside that sum, using the same principles and simply investing what you can will make a big difference to their children's lives thanks to the power of compound interest.
Starting early: Sign your child up to a junior Isa, as the interest earned is tax free
STEP ONE: SIGN THEM UP TO A JUNIOR ISA
Your child is eligible for a Junior Isa if they were born after January 2011.
This type of savings account works in the same way as a standard Isa - any interest you earn on the money you put into the fund is tax free. However, the money cannot be withdrawn until your child reaches the age of 18.
And it must be your child who accesses the money - not you.
This year parents can save up to £4,080 into a Junior Isa.
If you put £340 a month into an account paying 3 per cent, you could build up a £97,076 pot by the time your child turns 18, according to figures from investment firm Hargreaves Lansdown.
If you put the money into an investment Isa that makes a return of 6 per cent a year, you would end up with a total of £130,157 by the time your child reaches 18.
Although, as with any investment, your savings could fall as well as rise.
STEP 2: BE GENEROUS WITH CASH GIFTS
Gifts of money are another way to boost your child’s nest egg.
To set up your child as a millionaire by the time they are 38, you need to get generous friends and family to give £3,000 a year in birthday and Christmas presents.
If this is added to a fund along with the £130,157 built up in the Junior Isa and reinvested every year at a rate of 5 per cent for the next two decades, your child could boost their pot to £683,610.
Giving money as gifts will also help reduce family members’ inheritance tax bill if their estate is likely to be worth more than £325,000 when they die.
However, they must survive for seven years after making a gift to avoid inheritance tax.
STEP 3: PILE MONEY IN TO A PENSION
One of the best things you can do to ensure your child becomes a millionaire by the time they reach 38 is to set up a stakeholder pension for them as soon as they are born.
Experts say stakeholder pensions are suitable for children because they typically have low charges. An added bonus is that money paid in is topped up by the Government in tax relief.
This means every £1 paid into a pension will cost a basic-rate taxpayer just 80p.
You can pay in a maximum of £3,600 a year into a stakeholder pension on behalf of a child or grandchild - and thanks to the magic of tax relief it will cost you only £2,880. With 6 per cent annual growth, the pot will increase to £516,134 over 38 years.
But remember your child won’t be able to get their hands on the cash until they are 55.
GRAND TOTAL BY THE AGE OF 38: £1.19 MILLION