Video explores how to build a £1m savings pot for your child for free with Government money.
“Greetings from a wet and windy Britain. At the moment it's December 2014 and another video that I'm doing now to complement children savings and that's making your child a millionaire.
Making your child a millionaire.
This is a very simple concept that I came up with all 15 years ago now and I though it was a good time to refresh on making your child a millionaire. So in plain and simplistic terms here, family allowance, child benefit:
The child benefit for your first child is currently £20.50 per week. Now you may wish to consider investing that money for your child for their future welfare and I played around and did some numbers. I actually wrote this spreadsheet, [again brilliant sort of sort of camera angles here, let's reflect out the window and things like that] but I wrote a spreadsheet and I calculated all this up.
[And] rolled it forward to say let's assume you have family allowance of £20.50 per week, let's assume it does increase with inflation, I've made some assumptions of two a half percent per annum, clearly that may or may not happen and then invest that money in a pension scheme for your child. Because you can, I've looked [at] in a previous video where I dealt with children being able to save in pension schemes and get tax relief.
So keeping the numbers plain and simple, £20.50 per week grosses up to roundabout with tax relief £25 a week ‘give or take ‘. With tax relief, you drop into a savings plan, into a pension savings plan, keep making contributions until they are 18 years old and then stop. The family allowance stops, the child benefit stops for that child e.g. at 18 and then leave it to grow until they reach retirement age.
Now based upon getting annualised growth then on the money that you save between the date they were born and aged 18 and then stopping payments and letting it grow based upon a growth rate of 5% per annum, at around 60 to 61 your child would have a pension fund in excess of £400,000, possibly pushing for £450,000 to £500,000 depending upon the charges.
If this pension plan achieved 7% per annum growth after charges, that pension fund would have grown to over £1 million by the time they are age 61, so just short of £1 million at 60, over the million mark at 61 and by the time their 70's, because let's face it so that pension ages are extending to work when were a lot older at the moment but by the time their age 70 over £1.8 million.
So by planning today for your child or your children at no cost to you, this is family allowance, child benefit, put the family allowance, the child benefit into a pension scheme for your son or your daughter, they get tax relief. Make those contributions for the next 18 years, I have made an assumption for inflation for the family allowance to grow each year in terms of how much you receive and then boom at 61 they could be millionaires.
Now to me: free money from the state, family allowance, child benefit, invest in a pension free tax relief, because their not taxpayers and boom potentially you could have given them a nest egg that their retirement like of say a 5% growth in excess of £400,000 at 7% growth in excess of £1 million by the time they’re roundabout 61-62.
So I could word this another way potentially: a “free £1 million gift from the government for your child”. Any questions, as ever, do contact me but I hope that gives you food for thought on long-term, helping your children as well as obviously the other short-term savings videos that I have done for university and school fees, for weddings and in general savings and things like that. Thanks very much for watching.”