UK savers have an infatuation with cash, particularly parents, the majority of whom are placing their children's Junior ISAs (JISAs) into cash rather than investing in stocks and shares.
In fact, more than 60% of JISAs are held in cash. This flies in the face of conventional wisdom, which suggests that people with long time horizons should put their money to work in riskier assets as they have more time to make money.
But there is a certainty with cash returns, while stocks can lose money. One way to help get over this hurdle is to encourage children to be interested in investing, according to Dan Coatsworth, investment analyst at AJ Bell.
This is crucial, as the more money built up for a child in their early years, the easier it should be financially for them to deal with some of life’s big milestones when they become an adult, he said.
He suggested a “spend some, save some” approach, as a “fair way to let the child deploy some of the cash while also subtly teaching them the importance of putting money away for another day”.
As they get older, Coatsworth said introducing concepts such as interest on savings and teaching them patience for bigger rewards will stand them in good stead for later money issues.
Children are likely to be more engaged if parents get them involved with investment decisions. Picking companies that make the things they like can be a great way to encourage the younger generation to put their money into assets that can make higher returns.
“A child might be more willing to put some of their money into certain companies, or funds that invest in them, if they are familiar with their products and services, and you explain that they could potentially make money if these companies do well,” he said.
“For someone of primary school age, it might be the companies which make their toys, favourite meals or drinks, or the creators of their cherished games.”
For example, Lego is an “obvious choice” when considering toy manufacturers. Unfortunately, the company is privately owned and you cannot buy its shares.
“Instead, choices of listed companies relevant to this theme include toy workshop operator Build a Bear; Hasbro, which owns Nerf and Peppa Pig; and Barbie and Hot Wheels owner Mattel,” Coatsworth said.
As they get older, interests may have moved on to things such as mobile phones, social media, fashion, music or gaming.
“Apple is likely to be a phone brand many children aspire to own, with the iPhone often considered to be a must-have product. Apple’s shares trade on the US stock market and can easily be bought by a UK investor and held in a Junior ISA,” said Coatsworth.
For music lovers, streaming service Spotify’s shares trade on the US stock market and can be included in a Junior ISA. It is one of the biggest music streaming platforms and makes money by charging users a subscription fee or carrying third party advertising.
Meanwhile, film buffs might wish to consider the parent companies behind such platforms as Amazon Prime, Apple TV, Disney, Netflix and Paramount Plus, which are all on the US stock market.
For social media users, US-listed Meta owns WhatsApp, Instagram and Facebook – the first two names are likely to have “considerable appeal” to teenagers, said Coatsworth.
“Snap is the other ‘biggy’ in the social media world with oodles of children using its Snapchat app. Its shares also trade on the US stock market,” he noted.
Meanwhile, although TikTok is owned by Chinese group ByteDance meaning its shares are not available directly, there are investment trusts and funds that have a stake in the company, including UK-listed Scottish Mortgage.
For gamers, he suggested VanEck Vectors Video Gaming and eSports ETF, where big holdings include Switch console maker Nintendo, Roblox and Take-Two, whose franchises include Grand Theft Auto.