They say parents know best, but do they actually? Considering over £800m went unclaimed in child benefits last year, it’s probably fair to say not all parents are on top of their finances.

If you’re a new parent or expecting, here are 5 things that you should be aware of to help you make smarter decisions about your family & children’s financial future. Some are things you may be entitled to while others are ways of using your own money to help your children in the future.

1. Child benefits
2. Tax-free childcare
3. 15/30 hours free childcare
4. Investing for your child’s future
5. Wills

If you already know everything about these things then maybe this article is not for you, although it’s cool to skim through it and give yourself a 5 out of 5 - otherwise, keep on reading and by the end of it you’ll have an understanding of the basics required to secure your family finances.

What you may be entitled to:

Child benefits

Simply put, this is money that the government pays to the parents or legal guardians responsible for raising a child.

You're eligible for the full allowance (~£84 per month) of child benefits if:

• You're responsible for a child under 16 years old (20 if still in full-time education or training)
• You and your partner earn less than £50k per year each (if the person on the highest income earns more than £50k but less than £60k you'll still be eligible for some)

If this is you, apply here.

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Potential benefit: £1,099 (per year) for the first child and £728 for each additional child (based on 2021/22 allowances)

Tax-free childcare

This is a government help that covers up to a 20% saving on your bill. That is, for every £8 you pay, the government contributes another £2. So if your monthly childcare invoice is £500, you only pay £400 out of pocket and the remaining £100 comes from the government contribution ie. you save £100.

You can receive contributions of up to £500 every three months, so a total of £2,000 per year. Children with disabilities get more, respectively up to £1,000 every three months or £4,000 a year.

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Not all parents can claim it though.

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You're eligible for tax-free childcare if:

• You're working, on shared paternal, maternity, paternity or adoption leave
• You and your partner (if you have one) are expected to earn at least the National Minimum Wage or Living wage for 16 hours a week over the next 3 months
• You and your partner both have an individual income (including bonuses expected) less than £100k (check the exact definition here if you're close to the limit)
• Your child is 11 or under
• You or your partner have a National Insurance number and at least one-off: British or Irish citizenship, settled or pre-settled status, permission to public funds (your UK residence card tells you this).

Setting up tax-free childcare online is relatively easy - apply here.

Potential benefit: £2,000 per year!

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Free childcare

Every child in the UK aged 3 or 4 is entitled to 15 hours of free childcare per week, regardless of the income of the parents or whether they work or not. This is applied automatically once parents fill out a form that’s normally distributed by childcare providers.

The eligibility for the full 30 hours of free childcare is the same as the eligibility for tax-free childcare and you can apply via the same account! The one difference... you're only eligible if the child is 3 or 4 (you can apply slightly before they turn 3).

• If your child is 3 or 4 then apply here
• If they're younger than 3 then set a reminder on your phone for the day they turn 2 years and 9 months - might sound random but this is the day you can first apply for these extra hours so make sure you do it straight away!

Please note the hours are applied from the first term following your child’s 3rd birthday. A child born in August will get it from September, whereas a child born in October will only get it from January.

Potential benefit: £2,700 per year!

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What you can proactively do

Children grow up quickly - and depending on how much you want to help them, the costs can get pretty expensive (think school fees, uni fees, first cars, house deposits etc.)

For a full summary of all the different things you should consider before starting to save or invest for your children, check this free guide out that we’ve put together for our customers. If you don’t have the time to read it all, we’ve summarised two of the most popular ways to save and invest for your children’s future below.

Junior ISAs‍

A JISA is a tax-free way to save or invest for children. This means that you don’t need to pay any income tax (on the interest you earn from savings), dividends tax (on any dividends you receive from stocks & shares) and capital gains tax (on any profit you make) on your savings or investments.

There are two types of JISAs - cash (savings) or stocks & shares (investing). While cash JISAs are risk-free (your money sits in a bank and is covered by FSCS up to £85k), they tend to pay an interest rate of around 1%-2.5%. While this is good in today’s climate - it’s still a long way below the annual return you’d like to make over a long time frame (like the first 18 years of your child’s life). A stocks & shares JISA invests your money into the stock market, so while it involves more risk (and the value of your investments can go down or up), the stock market does tend to outperform cash over a long time frame and so you can make higher returns than a cash JISA.

Your child can have one or both and the annual limit across the two types is £9,000 for 21/22 (subject to change every year). The money is locked in until your child turns 18 and at that age, the money is all theirs - so they tend to work best for long term goals and setting up for future financial freedom.

Most banks offer Junior cash ISAs and a lot of the fintech apps offer Junior stocks & shares ISA. If you’re looking for something a little bit more family-focussed then you could check out the junior stocks & shares ISA we’re building at Hapi. As a pennies to pounds reader, we’ll enter you into our end of June raffle (and add an extra £10 to the prize pool) if you open and fund Junior stocks & shares ISA with us by the end of the month using this link. Hapi allows both parents to manage and track the investments through their app, we also allow family members and friends to contribute and everyone can leave messages and pictures too. Think of it as a time capsule packed with money of course, but also some of your child’s most powerful childhood memories shared by those closest to them. What a present to receive on your 18th birthday!

Junior savings accounts

Junior savings accounts tend to work pretty well for shorter-term goals or if your child is a bit older and you’re starting to teach them a little bit more about money and savings.

While junior savings accounts tend to pay better than adult savings accounts, the interest rates are still not great and so it’s probably not wise to leave large sums of money in them for long periods of time (e.g. don’t use them to save for their 18th birthday when your child has just been born). MSE regularly update their list of top junior savings accounts but remember to check the fine print before opening an account. A lot of them come with restrictions around how much you can put in (before the interest rate drops to 0.01%) or how much you can put in you can withdraw etc.

How to protect your children:

Wills

Having a will is one of the most important ways to protect your child’s future. The benefits aren’t just financial - a lot of them are emotional too.

Firstly, financially, a will very clearly set out who is entitled to what. It also allows you to list out all your financial accounts and property in one place. This helps make sure nothing gets lost (unknown pensions and savings pots etc.) and can help remove additional stress during an already difficult time.

According to the Money Advice Service, over £8m worth of property and money went to the government last year because people didn’t leave a will! You can work out who will inherit your money if you die without a will by using this government calculator.

Secondly, there are emotional reasons why you should write a will. Most parents assume that, if they die, their children automatically get looked after by a close relative. Unless you have a will dictating this (who the “legal guardian” is), the decision is actually down to the courts. Writing a will can ensure your children get brought up by who you want if the worst was to happen whilst also ensuring that it’s done without the uncertainty of the legal system.

Our favourite will writer is Farewill who can write your will for you with prices starting at £90 (or £140 for couples).‍

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Disclaimer:

The views expressed here are just intended to provide guidance and general information and should not be taken as financial advice. When investing your capital is at risk and the value of your investments may go down as well as up. Tax treatment depends on your unique circumstances and if in doubt you should speak to a financial adviser or tax specialist.