I recently opened a Junior ISA for my son; it’s like a stocks and shares ISA for kids under 18.
The idea is that I invest regularly in his account, but he can’t access the pot until he turns 18.
The question is: how much could his account be potentially worth after 18 years of investing?
If I were to invest £100 a month for 18 years, his account could be worth around £70,000.
If we were to invest £150 a month for 18 years, his account could be worth around £100,000.
If we were to invest £200 a month for 18 years, his account could be worth around £134,000.
This is assuming I invest every month since his birth with an average 10% growth every year.
In this article, I go through what a Junior ISA is and how it differs to a stocks and shares ISA.
I also talk about how to calculate this potential value based on a number of key assumptions.
Finally, I discuss what are the options available to him once he can finally access his money.
Junior ISA: A Pension Account but for Kids
I like to think of a Junior ISA as a pension account but for kids. Why do I think of it as such?
A pension is a type of investment account that you can’t access until you pass a certain age.
In the UK, that age is currently 55. However in 2028, that age is due to go up to 57 – super.
Similarly, kids that have a Junior ISA can’t access their accounts until they pass a certain age.
That age is 18 and I really doubt that the access age will ever change, at least it better not.
With a pension account, you pay into it, your employer pays into it, and you receive tax relief.
With a junior ISA, the child’s parents pay into it, and the child may pay into it also if they can.
However unlike pensions which are taxed when you take money out, Junior ISAs aren’t taxed.
That’s right, that means your child gets to keep all of the money in the account to themselves.
Similar to a regular ISA, you can invest in whatever ETFs or index funds that you prefer.
What are some assumptions we have to make?
There are a number of assumptions, as shown in the MYB Early Retirement Calculator.
First of all, what age is your child now? Are they 4 months old, 4 years old, 14 years old, etc.
In this example, I’ll say that we started investing for your child as soon as they were born.
The next variable to think of is the starting figure: are you starting from 0 or with a lump sum?
In these examples, I’ll assume that we’re starting off with a generous lump sum of £1,800.
The next thing is to figure out how much you’d be able to deposit a month: £100, £150, etc.
In these examples, we’ll go through 3 scenarios: depositing £100, £150, and £200 a month.
Finally, how much growth do you expect from your investments? This depends on your funds.
You can take a look at previous history, however this is no guarantee of future performance.
In this example, I’ll say 10% growth if invested in a global index fund over an 18 year period.
How much will my child’s Junior ISA be worth in 18 years?
Using the assumptions, let’s see what will happen using the MYB Early Retirement Calculator:
If we were to deposit £100 a month for 18 years, our child could have an ISA worth £70,000.
Our total contribution over 18 years would be £23,400 (£1,800 plus £21,600 (£100x12x18).
The remaining £46,600 is from the assumed 10% year on year growth from our index funds.
If we were to deposit £150 a month for 18 years, our child could have an ISA worth £100,000.
Note that our total contributions over the 18 year period is £34,200 (£1,800 plus £32,400).
That means that £65,800 is added just from the predicated capital appreciation of our funds.
Finally, if we deposit £200 a month for 18 years, our child could have an ISA worth £130,000.
Our total contributions over the 18 years would total to about £45,000 (£1,800 plus £43,200).
The remaining £85,000 is from the assumed 10% year on year growth from our investments.
Could they Retire by the Time they reach 18?
If they had £100,000 invested by the time they reach 18, could they just never have to work?
I wrote an article on a similar topic as to whether a couple could retire off £250k completely.
If they spend £4k a month, the answer is no; they’d run out of money by the end of 7 years.
What about the child; could they live off £100,000 for the rest of the lives? The answer is no.
Even if they spent £2,000 a month (with no inflation), they’d run out of money after 6 years.
What could they do with £100k? The answer is simple: anything/everything they want to!
- They could pay for all of their university years all by themselves, without taking out any loans.
- They could use the money to start a business, grow it, sell it, and never have to work a job.
- They could go travelling for a few years and see the world during the best years of their lives.
Whatever they decide, we are sure that this money will give them opportunities like no other.
That’s great, but I don’t have that much money to Invest
You may be thinking: that sounds great, but I can’t invest that much for my child every month.
Or you may be thinking: I’ve just heard of junior ISA’s now and my son is already 10 years old.
Is it too late? Is there any point investing if I can only contribute to their ISA here and there?
The answer is no: it’s never too late. It’s better to start with whatever time/money you have.
For example: let’s say that your child is now 5 years old and you contribute only £50 a month.
Using the same assumptions, by the time they reach 18, they could potentially have £16,000.
Or let’s say that your child is currently 10 years old and you start contributing £100 a month.
Using the same assumptions as before, they could also potentially have £16,000 after 8 years.
The key thing is to open up a Junior ISA for your kids and start investing as soon as possible.
Just by doing so, you’re already giving them the best opportunities for the future.
If you’re interested to find out more about early retirement, check out: Quit Like a Millionaire.
In the book, the authors talk about how they were able to retire completely in their thirties!
To find out more on investing and retirement, check out my investing and retirement articles.
I talk about early retirement strategies, which funds to invest in, and which accounts to have.
Are you on your way to early retirement? Are you investing? Let me know in the comments!
