The Budget: Here’s What You Could Do With £2,000 A Year For Your Child!

Your child-care payments invested in an ISA could give your child a great start in life!

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FresnilloTomorrow’s Budget looks set to introduce annual payments for those having to pay for child care while they work — hopefully to ease the burden and make it more attractive for more people to go out and earn money.

Available to all families earning under £150,000 a year where both parents work, the original plan suggested last year was to offer payments per child equivalent to the tax on up to £6,000 a year in child care costs.

But that’s been upped to £10,000 now, and parents will be able to get an annual payment of 20% of the amount they spend on child care up to that limit.

What to do with it?

That will be worth up to £2,000 per year — so what’s the best use you can make of it?

Well, how about putting that amount into a stocks and shares Junior ISA each year?

Every child who did not qualify for a Child Trust Fund can have a Junior ISA, and while parents control it while they’re growing up, children get control of their own accounts when they reach the age of 18.

Does that sound like a good way to give your child a good kick-start to adulthood?

What’s it worth?

In the past 18 years the FTSE 100 (FTSEINDICES: ^FTSE) has been up and down like a yo-yo, lurching from the dotcom exuberance to disaster at the turn of the century, with the noughties boom followed by banking crisis and recession, and now the start of a recovery. But over that time, it’s still gained around 80% — which is about 3.3% per year.

On top of that, there have been dividend payments averaging around 3% per year, so the overall return will have handsomely beaten a bank savings account — during one of the scariest stock-market rides in decades!

Stockpicker kidNow, your child won’t be in day care for 18 years for sure, but suppose you invest £2,000 per year in a Junior ISA for them every year until they reach 18, using the government’s child care contribution while you can get it. And let’s assume an annual return of 6% per year in total (which is less than the previous 18 years), with dividend cash reinvested.

A tidy sum!

You might be surprised to learn that your child could be taking their first adult steps with a cool £38,000 stashed away!

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

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