Ethical investing for kids: the hows and whys

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For years I dithered about not really knowing how to save money for my children.  When they were born, I thought I would have plenty of time to figure it out, but now I realise that kids grow up fast.

With my eldest now nearly six years old, I personally felt like the time for action was now. Therefore, like the good financial educator that I am, I got stuck into some research on the best way to go about this.

What is a Junior ISA?

The first thing that I learnt was that there are kids versions of ISAs (individual savings accounts).  These offer similar tax-free benefits to the grown-up version, but with smaller limits (£9,000 per tax year) and a choice of two options.

You can pick from a Cash ISA, which is similar to a savings account, or a Stocks and Shares ISA for investing. You can set your child up one of each if you want, but the £9,000 limit is shared across the two.

The other important thing to note is that Junior ISAs (JISAs) lock the money away until your child is 18. Meaning that it is great for building a pot of money.

Why ethical investing?

For my kids, I wanted to invest, so I chose a Junior Stocks and Shares ISA, rather than a Junior Cash ISA. Time is a great equaliser when it comes to building wealth for your children, and I believe that investing is the way to do this. Plus with interest rates as low as they are, I didn’t want the money I was putting aside for their futures to be worth less than it is now.

I also wanted to know that the money I was investing was not going to be inadvertently destroying the planet or perpetuating social injustices. 

To me, it felt silly to put money away for my kids with the hope of them having a brighter future, if all the while that money was simultaneously in the hands of companies with huge CO2 emissions and large gender pay gaps (I have two girls!).

Therefore, for me, choosing to invest in ethical companies and funds seemed like the way to go. Building wealth and a better planet in one.

How to set up your kids’ JISAs?

Once again I got to work to find a suitable JISA that allowed me to invest into ethical funds on my kids’ behalf. That is where I landed on Wealthify.

Wealthify have a fabulous app that allowed me to set up JISAs for my kids. You get to choose your risk level from Cautious, Tentative, Confident, Ambitious, and Adventurous and ask you a series of questions to help you get this right.

You can then choose to invest in either their Original Plan or their Ethical Plan. Just two simple options. But if you want to see exactly where your money goes in these funds, then have a beautiful, jargon-free factsheet with charts and graphs to explain.

Fees are another important consideration. Wealthify charges a fee of 0.6% for account management and there are other fees for the investments themselves. With ethical investing, there’s a bit more work and due diligence involved to ensure investments in your Plan are truly ethical, so fees can be a bit higher. At Wealthify, they have investment fees of around 0.56% for their Ethical Plan compared to 0.16% for their original plan.

The final added bonus, and a big factor in my choosing of Wealthify, is that you can invest as little as £1. Furthermore, there is no need to set up regular payments. You can add money to your children’s account when you have it.

What are your goals for your children’s finances?

This is a big question, but one that is worth spending some time thinking about and discussing as a family. Do you want them to go to University? Or have a deposit for a house? Or funds a wedding? Or a trip around the world?

Creating a plan that aligns with your morals, values, and goals could be a great, sustainable way to boost your child’s financial future. And remember that if you choose to invest your capital is at risk.

The tax treatment depends on your individual circumstances and may be subject to change in the future.

Please remember the value of your investments can go down as well as up, and you could get back less than invested.

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