1. Child Trust Funds (CTF)
If you child was born after 1 September 2002 and is entitled to child benefit, they will also be eligible for a child trust fund. The UK Government will provide you with a voucher worth £250 (or £500 for low-income families) at birth, and another £250 (or £500) when the child reaches the age of seven.

Anyone can then top up the CTF to the tune of £1,200 per annum and the money cannot be touched until the child reaches the age of eighteen. Any interest or returns on the money is tax free.

There are three main types of CTF to choose from – cash-only, stocks and shares, and stakeholder (although these will have charges which are capped at 1.5% per year).

It is probably advisable to go for an equity CTF (stocks and shares). If you are able to top the fund up by £1,200 a year, plus the two vouchers given by the government, that’s at least £22,100 saved by the time your child is 18. Assuming that the CTF will also manage growth of 6% a year, the CTF could be worth just over £40,000.

And even if you can’t manage to top the fund up, ensure that you get the vouchers from the government and you use them as it’s essentially money for nothing! Click here to see a range of CTFs currently on offer.

2. Cash Gifts
If you have a little money to spare each month, cash gifts are an ideal way to boost your children’s savings whilst also reducing your IHT bill. The only proviso is that you must live for seven years after each gift to make it exempt from IHT, although gifts up to £250 per person per tax year are exempt, as are any gifts up to £5,000 for wedding gifts.

Regular gifts are perfect, no matter how much they are, as long as they are made from your normal income. These can be exempt from IHT although you must prove that you are giving on a regular, consistent basis and that your standard of living has not deteriorated as a result of giving the money. It is important to keep good notes of these gifts as HM Revenue & Customs will want details of these gifts when the giver dies, therefore good records will aid your children.

You are also permitted to ‘gift’ £3,000 per year to an individual so it is a good idea to make this individual your child. If you give £3,000 a year to your child and put the money into an equity unit trust, that’s £54,000 in the trust before any growth or interest is taken into account!

3. Pensions
It is a little known fact that parents can setup a pension for their child as soon as the child is born. As many in the UK will know, pensions are often in the news for the wrong reasons and many are concerned over how small pensions will be in the future. Therefore, setting up a pension for your child from Day One is a good idea.

By setting up a simple stakeholder pension, you can help ensure that your child has a good pension when they retire whilst, again, also reducing your IHT bill. From April 2008 (the start of the 08/09 tax year), the basic rate of tax is falling from 22% to 20%. Therefore you will need to add £2,880 (with tax relief of £720) to maintain the gross maximum annual investment level of £3,600.

So, with a little forward planning, it is possible to help your child to a richer future. Although not everyone can afford to put this much away, even a small amount each year can help significantly – it is worth asking any relatives who are tempted to give your child cash gifts on special occasions such as birthdays and Christmas to put the money direct into the CTF or pension instead of giving cash or a cheque. This way the money can grow and when all the small gifts are added together, they may add up to a hefty sum.

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1. Buy a packet of balloons, fill them with water and have a water fight.
2. Play cards.
3. Buy some seeds and plant them in your garden or a window box – sunflowers and beans are always a popular choice.
4. Play cloud stories – look up at the clouds and then make up stories surrounding what objects the clouds look like
5. Go to the library and get some books to read together.
6. Fly a kite.
7. Go for a nature walk (try and spot and identify as many trees and animals as you can)
8. Make a scrapbook.
9. Go swimming
10. Star Gaze

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More than 3 million children are now the holders of a CTF with many more opened each month. The majority of these CTF accounts are stakeholder CTFs with the money invested in shares and other investments. Two of the big attractions of a CTF account is the ‘free’ money given to start up the account, and the fact that no-one can touch the account until the child reaches the age of 18, when the money can then be withdrawn by them to do with as they wish.

Over £1 billion of taxpayers’ money has been handed out in the form of vouchers for the trust funds since the scheme began. On average, around £20 per month is saved into each CTF per account which means that in a cash savings account paying around 3.5%, the child would have around £7,000 saved when they reach 18.

The CTF is a good scheme for children’s savings because the money earned is tax free and it cannot be touched meaning there is no temptation to ‘borrow’ from their savings. Birthdays and Christmas are a good time to promote your child’s CTF to relatives and grandparents who can contribute directly into the account,

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Invitations
If you don’t have a lot of free time, shop-bought invitations are fine and can be bought cheapely these days. However, if you want to get creative, you can. You could use a digital photo as a background or design something yourself. Print out multiple copies, grab some coloured pens (glitter pens usually go down well), fill in the blanks and mail the invitations out.

Games
Classic games such as the ‘pin the tail on the donkey’, ‘treasure hunt’ and musical chairs’ are always popular with children.

Pass the parcel is a crowd pleaser – wrap up small gifts appropriate for the age group, such as sweets, hair grips and slinkys, every few layers. Make sure there are enough gifts so that each child gets something! The children need to sit in a circle. Play some music in the background and get the children to pass the parcel around the circle. When you stop the music, the child who is holding the parcel gets to take one layer of the wrapping off to see what’s there.
Smarties-relay is also popular. Divide the children into teams. Each team is given an empty bowl and a straw. In the centre of the room is a bowl filled with smarties. On your mark, the children have to take it in turns to run to the bowl and pick up a smartie with their straw and then drop it into their team’s bowl. The team who collect the most smarties win – all teams get to eat all the smarties they collected plus the winning team may get a small prize.

Goody Bags
Goody bags do not have to be expensive. You can also make your own – get a long sheet of cellophane (available from your local florist), some plastic cups, ribbon and/or glitter Fill the cups with a small toy and some penny sweets and maybe some birthday cake or small gifts such as coloured or novelty pens. Decorate the cups with glitter and then wrap them in cellophane and tie with some coloured ribbon.

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Game Theory is more commonly known as the ‘Prisoner’s Dilemma’. The classic version of it is as follows:

Two suspects, A and B have been arrested by the police. There is not enough evidence for a conviction. The police have separated the suspects so they are unable to communicate with each other. Each prisoner is offered the same deal: Testify for the prosecution against the other prisoner. If the other prisoner remains silent, you will go free and your accomplice will be jailed for 10 years. If you both stay silent, you will both go to jail for 6 months on a minor charge. If you both betray each other, you will both serve 2 years in jail. Each prisoner must then make a choice – to either betray the other, or to stay silent. Neither prisoner has any idea what the other prisoner has made as their choice.

This diagram summarises the above dilemma:

We can modify this to make a game for children (you will need to have 2 children to play this!). Pick something that they like to do but have differing opinions on – for example they both might want to play a board-game, but they prefer different games, or they both might want a bed-time story but each has chosen a different story and you only have time to read one of the two stories.

- Explain to the children that there are three rounds to the game. If they don’t come to a common consensus by the end of the third round (they both pick the same board-game), they don’t get to play the game at all.
- Flip a coin to decide who goes first.
- Get the first child to decide which board-game to play. The second child to either accept or reject the decision. If they reject the choice, they can pick their own choice. The first child then gets to accept or reject the choice. If they reject the choice, the round is over and no board-game is played and the second round begins.
- The above step is repeated again. The key is that if three rounds go by and a decision has not been agreed on, noone ‘wins’ ie no board-game is played.

The aim here is see if the children can see that if they pick a game that the other isn’t interested in, they are hurting themselves because they won’t get to play the board-game therefore they need to look for something they both like – they need to make a compromise.

This is a great way to get children to cooperate and start to think about different outcomes and how to achieve a mutually agreeable outcome. It can help to solve a lot of arguments in the household!

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Getting children involved at a low level is an excellent thing to do – school-leavers currently are not taught financial planning and know little about interest rates and credit and so often will not make the most of their finances.

So what are the best ways to start your children off on the right financial footing?

Learn through play
For young children who may not be ready to learn about the realities of money and savings, there are many shopping games where they can learn about handling money and giving change. These can be either in the form of small shopping stores where they can exchange plastic money, or in the form of board games. Monopoly is an old favourite which teaches about money management, property management and negotiations and compromising.

There are also plenty of PC games to choose from. If you go to sites like Yahoo games, there are plenty of free download games to choose from.

Savings Accounts
These are a simple, easy way to teach children about the benefits of putting money away regularly. It also teaches them about how interest rates work. Christmas is a fantastic time to open a new savings account for them as any money received can then be paid into the savings account.

There are over 100 children’s savings accounts to choose from with rates varying by as much as 4%. Do not be swayed by the incentives that some offer – good rates are more important than a short term offer such as a game or a soft toy. Parents need to open the account on the behalf of their child and they will need to fill in an R95 form (from Revenue & customs) to ensure that the child’s account is not taxed.

Child Trust Funds
For all children who were born on or after 1 September 2002 and who reside in the UK, they are entitled to a £250 voucher to open a Child Trust Fund (CTF) account. If your family is of a low-income, you can receive an extra £250 voucher. The Government will then pay another sum into the account when the child reaches 7. The account can be topped up by £1,200 a year – Christmas is again a good time to promote this account amongst friends and family to ask for money contributions instead of gifts.

The money can only be withdrawn by the child when they reach the age of 18. Any interest accumulated in the account will not be taxed up until this point.

The CTF itself can be either cash or investment. Cash is common because investment CTFs are more risky and although they can provide better growth, they can also lose money.

Shares
Shares are when you buy a part of a company and you share in both it’s profits and it’s losses. Buying shares with your child is an excellent way to introduce them to business and companies.

Pick a company which your child has an interest in – maybe a toy company, or a sweets company. Buy a couple of shares and follow their performance over time. You may want to plot a simple graph showing the shares’ progress. You can explain why the share value goes up and down and what factors affect the share price.

Investments
For slightly older children who understand how savings accounts and CTFs work, you may want to consider introducing them to investments. You will need to explain why financial planning is important for the future – for example to build up a deposit for their first house, or to accrue funds for university.

Funds that focus on growing your money rather than providing an income and the best option for children. Several companies offer unit and investment trust fund with specailist children’s savings plans. These are usually the same as the full schemes however the minimum-level thresholds are lower.

Bear in mind that whether you ‘designate’ the account with the childs initials or you hold the investment in a bare trust, you will be treated the same when it comes to tax – it will be charged at the parent’s rate for money they donate. Any other money will be taxed once the contributions exceed the child’s personal allowance of £5035.

A trust is also a good thing for your own financial planning – although it isn’t too flexible, it is a useful tool when it comes to inheritance tax purposes.

Pensions
Another option is to set up a pension for your child. Pensions are actually one of the most tax-efficient ways of saving for a child and they offer fantastic incentives. If you invest up to £2808 a year, the tax relief tops it up to £3600 which is an immediate cash boost. However, any extra money you put in will not earn you more tax relief.

Pensions can start from as little as £1 per month and can be setup from birth. Anyone can make a contribution to the fund, again you can promote the fund at Christmas. The only downside of having a pension plan is that the money is locked away from the child for a very long time.

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