How lockdown could financially impact your children

Lockdown has been tough and affected us all in lots of different ways, but particularly children. While there now seems to be some light at the end of the tunnel, the tough times facing children won’t end as soon as lockdowns are lifted.

As well as concerns about mental health, social isolation and physical health caused by lockdowns, there will be a financial cost too.

We’ve taken a closer look at how parents can act now to try and get on top of these costs and help give their children a brighter future.

This article isn’t personal advice. If you’re not sure whether an investment is right for you, please seek advice.

The costs of lockdown

By the time schools reopen, lockdowns might have amounted to a half year out of normal, in-person schooling for lots of children. This could have a big effect on their futures.

According to the Institute of Fiscal Studies, a year of school increases earnings by 8%.

If this is the case, taking the average UK salary at £30,800 (after tax and benefits), this could mean £1,232 a year lost after spending 6 months out of normal schooling.

This impact could be reduced if governments address this with enough catch up work, or if children have received good support at home.

But if there‘s a hit to their future earnings, it could affect them right the way through into their retirement.

Lower incomes can impact on health and make things like finding a home, starting a family or just living life that much harder.

Although it might seem like a long way off, contributions to lots of pension schemes are paid as a percentage of salary. This means they’ll also have less built up to have a comfortable lifestyle when it’s time to start drawing an income.

If they don’t earn enough, they might not qualify for any employer contributions to their pension under auto-enrolment.

For teenagers, first jobs are usually in retail or hospitality – areas hit hard by the pandemic. Right now, lots might not be able to earn their own income making it harder for them to save.

Other costs children could face

On top of these setbacks, being an adult will be expensive too.

A child might eventually go to university. In 2020 the average total cost of university accommodation (including bills) was £14,742 after a 3-year degree.

If they decide to purchase their own property, lots of banks are now demanding deposits of up to 15%. Last year, UK first-time buyers paid an average of £57,278 as a deposit, or an average of £130,357 in London. That’s not pocket money prices.

Things could improve and prices could get better in a post-coronavirus recovery. But there’ll always be a need for money.

If you can, you might want to think about starting to put aside some money for the children in your life. Starting now could help them when they need it most and give them a financial head start in life.

But how should you go about it?

Think about investing for a child

Putting money in a child’s savings account is a safe option if they need the money in less than 5 years. But there are two reasons why it might not be the best option when gifting money for a child’s future.

• Interest rates are low and have been for a while. The Bank of England has said they don’t expect them to rise for the next two years.
• Over time, inflation will eat away at the real value of those savings too.

If you have time on your side, and are happy with the extra risk, investing in the stock market could offer the potential for better rewards.

Assuming a growth rate of 5% a year after charges, a monthly investment of £100 could be worth £23,958 after 15 years. That’s £5,958 growth on your total contributions of £18,000. You can check how much your child’s investments could be worth with our calculator. Actual returns depend on the investments you choose.

Try our Junior ISA calculator

Remember, unlike the security offered by cash, investments can go up and down in value, so the child could get back less than you put in.

Find out more about saving vs investing

Investment accounts for children

If you’re looking to help a child when they start to face costs in adulthood, the Junior ISA can offer a way to invest which they can start accessing after they turn 18.

If you’re looking to invest to help fund a child’s retirement, there’s the Junior SIPP.

They’re both tax efficient, so the child can grow their wealth without paying more tax than they need to. Tax rules can change, and benefits depend on individual circumstances.

These accounts must be opened by a parent or legal guardian. Once the account is open, anyone can add money, even friends and grandparents.

Whichever account you choose, you can be confident it’ll be easy to manage with a wide range of investments to choose from. See how our accounts for children compare.

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