The power of compound investing for children and grandchildren

The arrival of a child or grandchild can be a joyful reminder to think beyond the here and now.

Alongside the practical preparations – from buying the essentials to planning for education – many parents and grandparents naturally begin to consider what they can do to help the next generation build a secure and fulfilling future.

Of course, no amount of planning can remove uncertainty altogether. Life will always bring changes, challenges and opportunities that cannot be predicted. However, thoughtful preparation can help create more choice, flexibility and resilience over time.

This is where financial planning can play an important role.

At its best, financial planning is not simply about money. It is about helping people live well, reduce avoidable stress and make informed decisions that support both their needs today and their goals for tomorrow.

When thinking about a child’s financial journey from birth into adulthood, one of the most valuable advantages is time. Starting early – even with modest, regular contributions – can make a meaningful difference over the long term, particularly when those contributions have the opportunity to benefit from compound growth.

What is compound investing?

In simple terms, compounding means earning returns on your returns. As an investment grows, any future growth is calculated not only on the original amount invested, but also on the returns that have already been generated.

The example below shows how a single £1,000 investment could grow if it achieved 5% annual growth and no further contributions were made:

The figures shown are illustrative only and do not account for charges, tax or inflation. Investments can go down as well as up, and you may get back less than you originally invested.

In this example, a £1,000 investment held for 18 years could more than double in value, without any further contributions. While investment returns are never guaranteed, compounding shows why starting early for your children or grandchildren can be so powerful: the longer money remains invested, the more opportunity it has to grow as they approach adulthood.

Contributing to your child’s/grandchild’s pension

A contribution of £240 per month into a child’s pension could be increased to £300 with government tax relief. This equates to £3,600 per year. If those contributions were made for 10 years, the total amount saved would be £36,000.

The below chart illustrates how this could grow over the years (assuming that pension then achieved annual growth of 5% before charges):

These figures are illustrative only and are based on assumed growth. Actual returns will depend on investment performance, charges, tax rules and personal circumstances.