When to tell your kids about their Jisas

The benefactor’s dilemma

As well as compounding wealth, Interactive Investor’s survey suggests that time does funny things to investors’ perspective – maybe especially when it involves funds managed on behalf of another. So, for those belatedly conflicted on the matter of Jisa bequests, should you tell your children?

From the get-go, I want to stress that nothing here is legal or financial advice. I’m not advocating for the interception of transfer-of-control letters from Hargreaves Lansdown, lies, or requests that funds be returned, each of which involves various shades of fraud. In fact – spoiler alert – I’ll state right now that yes, children should be informed about their Jisas, ideally well in advance.

But let me dwell on the thought experiment for a few minutes, if only to assuage the frets of the many parents out there who (like me) feel conflicted at the notion of giving life-changing amounts of cash to a very young adult, or even building up a nest egg in the first place.

The first challenge is perspective. When you’ve just been given the keys to adulthood, it’s extremely hard to see a £50,000 nest egg through the lens of a reluctant Jisa patron. With limited life experience, usually dependant-free, and faced with a world of opportunities, few 18-year-olds will spontaneously conclude that such a sum – if left alone to grow – represents the lion’s share of a downpayment on a comfortable retirement. 

Similarly, when you know how much of a working life is ultimately dedicated to that goal, it can be equally hard to shake the feeling that you know better, or that a young recipient’s continued ignorance might be in their best interest. The tale about Fidelity discovering that its best-performing investment accounts belonged to customers who had died or forgotten about their holdings may be apocryphal. But it has a ring of truth to it.

That’s because experience teaches us that placing greater value on today’s wants and needs is a trade-off, and usually in conflict with long-term wealth building. And because we can all remember the financial priorities (or lack thereof) of our 18-year-old selves, it’s easy to doubt the wisdom of passing the baton. Alas, the time value of money becomes more acute the less time you have. And because funding a Jisa often occurs alongside the benefactor’s own retirement saving, it’s tempting to view the goals or utility as equal. They aren’t.

Another thorny case involves those nest eggs set up for an intended purpose, such as a house deposit, or university tuition. Intentions are often well-meaning. But strictly speaking, a Jisa recipient is free to do what they want with the money. Cue abrupt panics in some households once teenagerhood reveals a flair for the reckless.

More than money

The Bearbull household doesn’t yet face this delicate moment. But with progeny aged four and one, the Jisa debate is taking root, and informing discussions around how much to put in.

A few years ago, flush with the optimism of early parenthood, my wife and I began maxing out our contributions to our first-born’s stocks and shares account. Other outgoings have since paused payments – a byproduct of which means our second child requires a bit of a catch-up – but a decent run from a cheap tracker means that with a fair wind and a few more modest annual contributions, six-figure sums might eventually be in reach. How, then, to proceed?

I’m sure there is projection going on here. Hard work and fortune (of the defined-benefit pension and London house price variety, rather than inheritances or lucrative jobs) means my parents were never motivated by or particularly interested in money. They were frugal, which probably informed my bias to accumulate cash. But I left home without any insight into personal finance beyond the twin maxims to keep spending low and save more than you spend.

I never recall a dinner table conversation about compounding, business, economics, the time-value of money or financial assets, probably because my mum and dad lacked their own understanding of each. As such, my desire to pass on both a material advantage that I never had, and information that I never knew about, is an attempt at a generational correction.

Without sinking further into self-therapy, I’ll eventually have to relinquish that illusion of control. Indeed, it’s something all Jisa benefactors need to make peace with, given all this boils down to trust between an adult and a soon-to-be adult.

Because that is a personal relationship, there is no correct answer or playbook to this. But given the nature of the above concerns, I think the best remedy is to begin the conversation early.

To a degree, this is a rearguard action against a pot of money going up in smoke. Beyond that, a Jisa is both a chance to introduce a young person to myriad worldly matters, and an invitation to responsibility.

Such persuasions won’t suit everybody. If you want to build a financial endowment for your children – but want to maintain control over the when, method, how much (and if) – then regular Isas offer the means to so tax efficiently. The caveats here are that this means sacrificing some of your own allowance and may introduce inheritance tax on any gifts you make.

There are, of course, limits to Jisas, too. As no withdrawals can happen before a recipient’s 18th birthday, they are somewhat abstract, and can’t teach much about managing expenses. Added to this, risk and reward is especially hard to understand over years or decades. Still, given the alternative – a large one-off gift – there’s no substitute for an account with a recipient’s name on it, even if a longed-for shared interest in investing never materialises.

Personally speaking, my intention is to involve my daughters in the process as early as possible, with a view to handing over full management from 16. A well-funded Jisa is not just an opportunity to pass on a significant financial gift, but an ultimately more important financial lesson. And I’m not leaving the latter to the education system.