Parents look to Christmas investment gifts as £760m will be spent on unwanted presents

This Christmas, however, two in five parents (39%) plan to gift a financial investment to their children2, by either setting up or contributing to an account or product that will benefit them in the future, as a third (32%) say the pandemic has made them think more about the importance of saving money2.

The survey of more than 1,000 parents2 reveals that each child receives an average of £3523 in gifts at Christmas, with an average of £63 spent on ‘wasted’ presents. The proportion of wasted gifts varies regionally with over a third (35%) of gifts going to waste in London, 20% in the East Midlands and 18% in Yorkshire and Humberside2.

Four in five (79%) parents agree that this level of waste is a worry2, with 30% citing concerns over the potential financial loss of spending money on wasted items2, and 21% concerned about the environmental impact of discarded gifts2. A further 28% are concerned about the example it sets for their child2.

Even small financial gifts can build into big pots in the long term. A Junior ISA (17%) is the most popular way for parents to save for a child, and according to SJP’s calculations, an annual contribution of £365 - equivalent to £1 a day – invested every year from birth could turn into over £11,000 on the child’s 18th birthday4. This could reach nearly £25,000 after 34 years – the average age that people buy their first home in the UK5.

Similarly, putting £5.50 aside every day from the day a child is born until they reach the age of 10 could result in a pension pot worth £1 million by the time they hit 65 (see second table below).

Rob Gardner, Director of Investment Management at St. James’s Place, said: “Thinking differently about how money is spent on gifts for children this year can make a big difference. A small change this Christmas and throughout their childhood could be the difference between a playhouse today or a home of their own tomorrow.

“Our research shows many parents expect lots of presents to be soon forgotten this year. By investing some money for their future selves, whilst focusing on the toys they really want, children can get a head start in life and still feel the joy of receiving.”

A Junior ISA (JISA) is perhaps the most popular way for parents or relatives to put money aside for children and is an ideal way to provide money for a future house deposit or university fees. With the effect of compound interest, small and regular contributions can add up to life-changing sums.

Up to £9,000 can now be saved into a Junior ISA during the 2020/21 tax year, however far smaller amounts can still result in healthy, tax-free sums by the time a child turns 18.

Starting a pension for your children as soon as they are born can give them a head start and lead to significant sums for later life.

Even as a non-taxpayer, children will still get basic-rate tax relief on contributions. That means a maximum of £2,880 a year is automatically grossed up to take account of tax at 25%, giving an annual investment of £3,600.

Young investors can also take advantage of time, meaning they can take on more risk with their investments. It’s not unusual for younger investors to be fully invested in equity funds.

If you're looking for ways to provide younger family members with long-term financial support in uncertain times, I can help. Just ask.

The value of an investment with St. James's Place will be directly linked to the performance of the funds you select and the value can therefore go down as well as up. You may get back less than you invested.

The levels and bases of taxation, and reliefs from taxation, can change at any time. The value of any tax relief generally depends on individual circumstances.

1 Approx £2.4 billion is spent by parents on all kids under 18, and approx £1.9 billion is gifted by others to all children under 18. That total figure of £4.2 billion spent on Christmas gifts for children x 18% = £760 million wasted.
2 Research conducted by Opinium Research between 11 and 20 November 2020. A sample of 1,002 UK parents with children under 18 years of age were interviewed.
3 Survey respondents estimated they spend an average of £198 on each child at Christmas, with a further £154 received in gifts per child from relatives and family friends.
4 Assumes an annual growth rate of 5% net of charges. This figure is an example only and is not guaranteed. What you get back depends on how your investment grows and the tax treatment of the investment. You could get back more or less than this.
5 Average age of first-time buyer in the UK: https://www.finder.com/uk/first-time-buyer-statistics, August 2020