MONEY COMMENT
Turning Small Change Into Big Bucks

By Cliff D'Arcy
February 7, 2003

Without doubt, my greatest joy in recent years has been the arrival of my young son. Until recently, I would have called him my baby but that seems less appropriate now he's around 20 months old.

Almost as soon as my wife discovered she was pregnant, I enthusiastically started to devise plans to give our baby a good start in life, financially speaking.

Days after little C was born, we took along his birth certificate and opened a children's account in his name. We chose the Smart2Save account with the Nationwide BS, which pays 4.5% interest. Little C also got a little goody pack and magazine, but we chose the account purely because it offered one of the best rates on the high street.

Also, we completed a form R85, which means that little C gets his interest paid gross (without 20% savings tax being withheld). A child can earn interest of up to £100 a year from each parent without paying tax, so we keep a careful record of the source of every deposit.

Naturally, generous relatives and friends give him cash gifts and cheques from time to time, all of which we place in his account for safekeeping. The good news is that money from other relatives and friends isn't taxed at all (assuming he doesn't earn more than this year's personal allowance of £4,615).

Now I'm working again, we're going to pay his Child Benefit into a long-term savings plan, so that he'll have some financial help when he becomes an adult. Depending on its size, this sum might be used for university, taking a holiday, buying a car, a house deposit, etc.

We plan to save money on his behalf in a low-charging, stock market-linked index tracker fund, which should out-perform cash and other investments over the next sixteen years.

I've also developed two good habits that help to boost his savings.

1. At the end of most days, I empty my pockets of all my spare change and deposit all coins under £1 into his moneybox. This often comes to under £1 but sometimes approaches £5 (when my trousers are riding low). Then, each month, I pay this money into his savings account to give it a little boost. It's surprising how much you can amass in this simple way.

2. One thing about walking around a lot with a small child is that your eyes are always looking downwards towards the pavement. I'm fairly tall, so I have to hunch over when walking with a small hand or set of reins in my mitt. This gives me a great view of any abandoned coins in the street - so far this year, we've found a fiver plus loads of small change, all of which goes to a good cause - C's moneybox.

Incidentally, our most lucrative time seems to be weekend mornings, when we find change presumably dropped by the over-refreshed the night before!

This isn't frivolous: over a long time, saving small sums can make a big difference.

Say we save £25 a month in a shares-linked product growing at 9% a year after charges. Using the Fool's savings calculator shows that, after 16 years, we'd end up with a final sum of £10,377. Even at 6% a year, it would grow to £7,950 - a lot more than the £4,800 we would have paid in.

Of course, thanks to inflation, this will be worth a lot less in 2019 but it's a good start and, however much we save, it will help to teach little C something about the value of money.

Read more about investing for children here.