5 helpful lessons to teach your child about how to use their Junior ISA

When a child turns 18, control of their Junior ISA (JISA) automatically transfers to them. Without financial guidance, a lump sum can be overwhelming or quickly misspent.

If you’ve spent years diligently setting money aside for your child’s future, this moment can be both exciting and nerve-racking.

Without prior guidance, your child may see this as “free” money and fritter it away in a matter of weeks or months. However, the secret to avoiding a spending spree may not be to lock the money away, but rather to teach financial literacy early.

By introducing key concepts in the years leading up to adulthood, you could help your children handle this transition responsibly and with confidence.

Here are five strategic lessons you can share with your children to help them make the most of their money.

Lesson 1: The magic (and time) of compound growth

To a teenager, the choice between buying something flashy today or keeping their money invested for decades can feel like a no-brainer. This is particularly true given the pressure young adults face to keep up with their peers.

Young Minds states that 88% of young adults aged between 20 and 25 report feeling pressure to look or act a certain way to fit in. Most of this pressure comes from social media, their friends, and their own perceptions of themselves.

Moreover, the concept of growth may be hard to visualise for someone with limited financial experience.

To help them understand this, sit down with your child long before they turn 18 and have open conversations about finances and long-term prosperity.

When discussing growth, show them how compounding works in real terms by using a simple online investment calculator.

Seeing how money can generate its own earnings, and how those earnings can generate even more, could help shift their perspective.

Lesson 2: The power of the tax wrapper

It’s unlikely that the average 18-year-old gives much thought to HMRC, but understanding tax efficiency is one of the most valuable adult skills they can learn.

Helping them understand the tax benefits of keeping their money in an ISA could encourage them to continue saving or investing in this tax wrapper.

Note: A JISA automatically converts to an adult ISA of the same type when the child turns 18.

Explain that an ISA acts as a shield, protecting their money from Income Tax and Capital Gains Tax (CGT).

To make the concept real, offer simple, tangible examples.

• Tax on interest: Show them what they may have to pay in tax on the interest they’re generating outside of an ISA once they exceed their Personal Savings Allowance.
• Tax on gains: Illustrate how investments held outside of an ISA wrapper can be subject to CGT when sold.
• Contribution limits: Explain that once they have pulled money out of an ISA, putting it back in is subject to the £20,000 annual adult ISA limit.

By demonstrating how much tax they save over time, you could help reinforce the concept of keeping money inside an ISA as a long-term, wealth-building strategy.

Lesson 3: The difference between earmarking money and spree spending

An important lesson you can impart is that financial discipline isn’t about simply saying “no” to everything. Instead, it is about allocating your money intentionally.

Expecting an 18-year-old to keep 100% of their JISA locked away for a future house deposit may be unrealistic and could even create friction around saving.

Instead, demonstrate different ways of managing their money. The bucket method could work well here:

• The short-term bucket is money earmarked for immediate young adult milestones, such as a gap year travel fund. This could be 20% of their fund.
• The long-term bucket is money set aside for a future house deposit or general long-term growth. This would remain in the ISA and could make up 70% of their fund.
• The enjoyment bucket is money set aside for them to spend on whatever they wish, guilt-free. This could be 10% of their fund.

By showing that it’s okay to enjoy a portion of your money, you can help them develop a healthier relationship with money, rather than imposing strict restrictions.

Lesson 4: Risk versus reward

If your child’s JISA has been held in stocks and shares, it’s helpful to explain to them why its value fluctuates. If it’s in cash, it’s important to help them understand why inflation could be quietly eroding its purchasing power.

You can differentiate between short-term volatility and long-term inflation risk by explaining the following:

• Cash savings are safe in nominal terms but will lose buying power over long periods if interest rates don’t beat inflation.
• Investment values can go up and down in the short run but historically tend to beat inflation over longer windows.

Helping your child evaluate their timeframes for saving and investing can help them choose the right accounts for each goal. Money for university or a car may belong in low-risk cash, whereas money for a house may see more significant growth in riskier environments.

Lesson 5: Apply hands-on practice before age 18

From age 16, teenagers can legally take over the management of their Junior ISA account. While they cannot withdraw the funds until they turn 18, they can make investment decisions and decide how the account is managed.

• At age 16, consider giving them the login details and encourage them to check the account statement once or twice a year. You can review the fund’s performance together and discuss any changes.
• At age 17, you could start discussing their plans for the 18^th birthday transition. Ask them open-ended questions, such as what their plans for the next five years are, and allow them to lead the conversation.
• At 18, be there with them as they complete the formal handover to an adult ISA. It can be an exciting moment and feel overwhelming at the same time, so it could be helpful for you to be there as a sounding board.

Involving your teenager in the management of their account early on can help build confidence and reduce the shock of taking full ownership at 18.

We’re here to help

Guiding the next generation towards financial independence is one of the greatest gifts you can provide.

Whether you want to review your family’s investment strategy, plan a tax-efficient transfer of wealth, or prepare your child for taking over their JISA, we’re here to help.

To find out more, get in touch.

• Marnel Stafford: email Marnel.Stafford@fosterdenovo.com or call 07305 970959
• Ryan Edwards: email Ryan.Edwards@fosterdenovo.com or call 07591 758136

Alternatively, you can call our office on 0207 469 2800.

Please note

This article is for general information only and does not constitute advice. The information is aimed at individuals only.

All information is correct at the time of writing and is subject to change in the future.

Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.