For the first time more than half of parents are aware of the Junior ISA

The Junior ISA celebrates its second birthday on the 1st November and for the first time a majority (57%) of parents are aware of the long-term children’s saving product.
 
For the last two years, Family Investments has surveyed parents to establish levels of awareness. In 2011 when the Junior ISA was introduced just 27% of parents had heard of the product and this rose to 44% last year. Improved awareness has been reflected in official sales figures from HMRC with 71,000 Junior ISAs sold in the 2011/12 tax year compared to 295,000 in 2012/13 – an increase of 315%.
 
The Junior ISA was intended by the Government to be the default long-term savings product for parents looking to save on behalf of their children and this increased awareness is encouraging. However, HMRC figures also show that parents may not be fully taking advantage of the long-term growth potential as 203,000 of those Junior ISAs opened last year were cash accounts and only the remaining 92,000 were stocks and shares based accounts. A total of £293 million has been deposited in the cash accounts compared to £99 million in stocks and shares.
 
Kate Moore, Head of Savings and Investments at Family Investments said: “It’s fantastic that the Junior ISA has started to really gain some momentum amongst parents, however there is some concern about the high number of cash products being opened. Cash is ideal for short term saving and may well suit children in their teens but for younger children it is unlikely to deliver the best returns. Equities tend to outperform cash over the long-term and this trend is expected to continue according to analysts in the coming years. The £293 million sitting in cash would have grown to £336.6 million if invested in the FTSE 100 over the last twelve months. Instead it will have grown to £300.9 million in cash which is £37 million of potential savings lost. While there is more risk associated with equities, the growth potential is historically better as these performance figures indicate.”

Only a fifth (21%) of people said they would choose to put their pension savings in cash which suggests people recognise the benefits of investment for long-term growth but are more cautious when it comes to children’s savings. Amongst those people who have opened a cash Junior ISA or its predecessor the Child Trust Fund, just 17% did so because they thought it would offer the best returns. 42% of people said they chose cash because they did not want to take any risks with their child’s money, while 35% liked the simplicity of cash.
 
Kate Moore, continues: “The majority of people recognise the benefits of investment but are cautious when it comes to their children’s savings. There’s a different dynamic to children’s savings and because parents are opening the account on behalf of someone else they are more risk averse than if it was their own money. However, a Junior ISA is a long-term investment for the majority of people and parents should not ignore the significance of potential stock market returns which as we’ve seen in the last twelve months can be significant. Of course there are risks associated with investing in equities as markets can go down as well as up but over an eighteen year period bumps in the market will normally be smoothed out.”