Specialist Independent Advisers based in East Anglia

Lovewell Blake Financial Planning Limited

Media Centre

Junior ISAs

16 January 2012

Over 90,000 individuals were declared insolvent during the first ten months of the year, according to Insolvency Direct.

This is hardly surprising when you consider the total outstanding on home loans is now £1.24 trillion compared to £577 billion ten years ago, and in addition the average personal debt per household stands at over £10,000 (source: Daily Mail).

Unfortunately much of our debt culture starts, or rather, is not stopped, during education. Our children seldom leave school with any real understanding of the basics of money management or the problems debt can cause.

Those who go to university are subject to the student loan system which has spent 20 years teaching our children that racking up large debts is perfectly acceptable. The extolled myth of ‘good’ debt compared to ‘bad’ is dangerous in my view, and ‘manageable’ no less disingenuous.

Fortunately, as a result of an e-petition created by Martin Lewis of Money Saving Expert, there was a Parliamentary debate on compulsory financial education in schools. A child born in 2011 could pay around £100,000 for a three-year university education by age 21 and so will need the right financial schooling to avoid a lifetime of debt.

Successive governments have tried to deal with the problem of financial illiteracy. For example, one objective of the Child Trust Fund was to improve financial education but they were not an overwhelming success, largely through unwieldy rules. However their replacement, Junior ISAs, are much more user friendly, and could help turn today's children into a generation of savers rather than spenders. I'll explain.

An important element in determining adult spending habits is childhood experience. Children from families that save are more likely to continue the pattern. Generally those who have accumulated some capital like the feeling of security it brings and wish to accumulate more. A Junior ISA is ideally placed to help, and once a parent has set one up any relative or friend can contribute.

A Junior ISA could be used for a number of purposes. It could mean your children or grandchildren leaving university without being saddled with debt. It could be a deposit on their first house. It could also prompt an interest in savings and investments which will help set them up for their own investing future.