What is the best way to save for your children's future? Ask Us Anything

0:01You know what I love, Damo? Things that save me time. You don't have YouTube premium, mate, so I just don't believe that. Granted, I'll give you that one. However, I've got one for you. A great time saver in personal finance is Money Week magazine. They spend a lot of time distilling the biggest stories in personal finance down into consumable chunks, so you don't have to scroll and scroll. They give practical tips on savings, investments, pensions, the UK economy, the global economy. It's like your five a day, but for finance. If you want to give Money Week a try, you can get six issues in print and the app absolutely free by visiting moneyweek.com forward slash money.

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0:50We'll be back with a brand new season in two weeks. But before then, I just want to say thank you to everyone who's been listening and getting in touch and letting us know how much you enjoy the episodes. We love getting the emails, especially with all the questions on and we just want to take the opportunity to answer some of those questions now that you've sent in we had this question sent in on youtube they ask i had a conversation with my wife recently about how she should move her pension from the safe company provided fund to the high level risk one but she was having none of it and she thought that in that context risk was inherently bad so my question is how should those of us who have learned about investing and understanding the meaning of these terms go about explaining these things to close friends and family who haven't very well read mate thank you um i hate how risk is framed by the investment world because they make it sound like you go into a casino which i don't think is an appropriate way of explaining it to people who don't understand what it what it means in the context i think the biggest risk is is not having enough at retirement right um and by by framing it in the way that they do, they kind of trap people or doom people to be too conservative.

2:02But on the other side of this, a risk tolerance is individual. I can't say my risk tolerance is the one that everyone should have. And if your partner, your wife is going, no, that's too risky for me. Well, that's their tolerance. And you have to listen to that. I would maybe instead of trying to convince them to go into more risky products, try and let them come to that conclusion themselves by saying don't you think it's risky that you're pinning your whole retirement on a fund that you don't even know what it does do you think that it would be less risky if you understood what you're investing in and you know if you trust that fund and the company that provides it maybe then they'll go and weigh and research what what the fund does and they'll come to the conclusion themselves that that probably they should be a little bit more risky and with your quotation marks i enjoyed them but it does depend on like their age and i mean risk in pensions it can be like two lots of equities can be seen as more risky than equities and bonds right so it can be like the um breakdown of what's inside the fund risk could be a discussion around expected returns and how much um a fund or investment product might fluctuate to get to those returns So risk could be, in one context, it could be volatility.

3:19It could be that we think that this particular investment, such as 100 % equities, has more chance of going up and down in value. Now, when we're young, we should not be too worried about volatility because we have enough time to outlive it, essentially. But when you're approaching retirement, you might de-risk or de-volatize. Is that the right word? De-volatilize. It doesn't make enough words. Yeah, yeah, yeah. But you might, you de-risk to reduce that volatility. But risk could also be the uncertainty about the return. So what we mean is the global stock market might have returned on average 9 % a year, but we might not be sure if it continues to do that.

4:00Whereas a portfolio where it's 100 % bonds, we can be very certain about the return that that will provide over the lifetime of those bonds, for us to say, within reason. so you know when we say risk it has different connotations but i think as a rule of thumb the younger you are the more risk seeking you should be so that you can expose yourself to the greater chance of returns and thus having enough in retirement it depends on how old your wife is at the end of the day

4:33nile says how can i be more patient i want to be a long-term passive investor but find it difficult not to want to tinker you answer this yeah i mean to get more patience just have a kid or get a puppy i guess honestly pump out a kid or have a puppy that will make because puppies are all over the same with kids but it gives gives you a lot more patience um i think and also it gives you a longer term view because if you've got a kid you're kind of looking for investments no you're not just looking at your lifetime you think beyond yourself you think beyond yourself so until i had a kid i was always like oh yeah it's fine i'll make money later it's fine but now i'm like okay if i start now compounding like compound interest i can get every time you say that word you say it like that like you're the first person i know i came out i coined the phrase um no so like you think about the long term because it's not just oh when am i going to retire it's okay my kid can enjoy this when he's 30 when he's 20 when he's 50 so if you start now they've got a long time to see the growth i think you did well there i thought when you said you know have a kid i thought this is terrible advice but no i see what you mean you think beyond yourself you think longer term i I also think just have some fun money.

5:37Just have a portion of your portfolio that you can roll the dice with. Because I think if you try and fight the tide in terms of your own emotions, you're probably not going to win. There's certain people like you, Niall, just have that impatience in you. And in a lot of ways, that is an asset. Manage it in the way, win places that it's not. I have 10 % of my portfolio that I can take risks with where I can try and become rich. And it just keeps my hands busy. the devil makes work for idle hands so you've got to keep those fingers going keep them in all the pies but yeah i think it's a good idea get a little fun money little money pit you can just um do some speculative investing buy a bit of bitcoin no um buy some buy some stock buy a bit of nvidia whatever you want like um just take a punt and don't worry about losing it because it's not your nest egg or it's not your main main um cash bag i guess you'll be too busy changing nappies to give a shit anyway yeah facts don't want ideas as a father of two young children with a third on the way and i'm sure many others good lad would i would really appreciate advice on how we can effectively save for their future basically any kind of accounts or investment vehicles and what we can do to ensure that when they become an adult they have the best start that they can please and thank you please and thank you there's three products we'll discuss but we'll talk first of all about this milestones or stages in their life where i feel that as a parent i want to help my child um because i do think it's important first of all to let them struggle so you don't want to bail them out constantly otherwise they become a bit of a bit of a dick right um the first the first period is this period of transitioning into an adult twenties, 18 to 25, where ideally I think most parents would say, if I can get them onto the housing ladder or make sure they're not straddled with loads of uni debt, that would be ideal.

7:30The product that helps there is a junior ISA, just like a stocks and shares ISA, or you can invest them in cash as well. But with a child, I would say for me personally, I'm in stocks and shares. That's a good product because the gains are tax-free. You can invest in that from the day that they're born um and that it legally becomes theirs at the age of 18 that presents issues in the sense of what issue does that present to i think it's a double edged sword i mean yeah like you said you can use it for you like uni or deposit but at 18 i find most people are probably not ready to have a large lump sum of money and they're not going to do anything good with it or anything long-term long-lasting productive i mean maybe you can buy them a car or something but i think it's yeah that's still terrible idea it is isn't it but i think um managing that that period is hard and um you might then want to go okay well i'll actually save in my own format so i might save inside my own isis so that i can control the money there's also something called a bear trust which i believe gives more control to the trust creator um which i know a lot of financial advisors speak as an alternative to junior isis so maybe you want to look at bear trusts as i think you the trust is it not the trustee but the person who started the trust would have more control over how that money is used that's the first area i'd look at this kind of 20 to 25 and then the other area would be when i die i want to make sure that my son i know that he won't be in poverty in retirement um so the way i'd achieve that is for a junior sip take it away too i put into actually damien and i both put into my son's junior sip every month um i think it's cool because when he's 18 you can't just have access to it and blow it all um you get the benefit of long-term compounding so you can i mean my goal is to get him close to a million by the time he gets into it so oh and also they can take it over and put it into their own they can turn it into their sip when they get older right yes it rolls from a junior sip into a sip which is just a pension product so essentially what you're doing is from the moment they're born you're saving for their retirement and i think every person at some point in their life wakes up to the reality of oh crap i need to be looking after my i need to be doing something for my retirement and we each hit that milestone at different points for with this you can then turn up and go i've been saving for your retirement from the day you were born and a small amount of money at the start compounds massively no one i love this i love the the realization that at the point a child is born they for a moment are the youngest person on the planet so no one has more time than them at that moment right officially wants the youngest person on the planet so you can invest for them for potentially 60 to 100 years so even if you just stick a few hundred quid in when they're born and leave it it will be meaningful and i think when they turn 30s 40s or whatever when they realize they can start paying into it as well and you've already done a load of the lifting for them definitely and then there's other there's other things i think we should discuss in terms of how do you instill good financial habits in a child how do you make sure that they don't turn into little reprobates or someone who doesn't doesn't understand how to use money you got any tips to you know they empty their ice on red or black at the casino and you're like well that's like 18 years wasted not if he doubles it my man my dad i taught you well um how do you yeah i guess teach some financial habits you can get them a good book by um deborah meadon deborah meadon you can't remember that name i couldn't i'm just terrible with names Yeah, Debra Meaden's book for children learning finance.

11:05She's a national treasure, mate. I remembered her name. Yeah, get them, really get them watching shows like this, but really it's about financial education. So you want to show them like real life examples. That's what I think anyway. So let them know the value of something. Like you said, your son knows about Roblox and things and like all these tokens. So kind of things that they're interested in, let them know the value of it. My parents were big on like work experience when you were younger. So, you know, you get a salary in the summers and you can see what it's like to work for your money and know the value of money.

11:34So there are lots of different ways you can do it. But I think teaching him to save or invest early is probably quite important. Yeah, I think you need to let him fail in a controlled environment as well. So one thing that's been happening with my son recently, he's gone to high school and he gets a card that you top up each week for his lunch money. He gives him like five pound a day. And on the first day he blew it all. He bought like eight bacon sandwiches in a day and was dishing them out. It's definitely your son, man. That sounds like something you do eat because he's going to do. Yeah, he was dishing them out to all his mates.

12:05And then he, because obviously to him, it's not real money in his eyes. So he was like, if I give you a bacon sandwich now, you get me a lollipop after school. So he was, yeah, anyway. But then he ran out of money. So it was like, well, you've run out of money, mate. We've got no money for lunch. Well, you're going to have to figure it out. So yeah, you let them fail in that controlled environment so that they don't do it later on in life. I think it's really important to let kids fail in that sense, in a controlled way. so maybe if you give them some pocket money and you go out for the day with them and go this is your money for the day everything we do today you're in charge of it let them blow it all on pieces of plastic that go in the landfill within the first five minutes and then all they be like you spent the money don't come in and bail them out because i think that gives them really bad lessons it's hard as a parent to do that yeah but i mean they say you learn from your mistakes uh something's the best teacher experience is the best teacher you really learn that lesson but yeah no it makes you better invest some guy said some guy said something and i took it on please remember this is not financial advice like we say a lot on the podcast investments can fall and rise in fact it's pretty much a guarantee past performance is no guarantee of future results so your money is at risk with investing and other fees may apply as with everything financial please do your own research we really encourage that because no one cares more more about your money than you.