Should Junior ISA pots go towards a university education?

The average interactive investor Junior ISA is worth £19,366 at age 17.

To enrol or not to enrol is a dilemma facing would-be university students, as concern over the value for money in the pandemic persists.

Whatever the decision, some very lucky would-be students are set to receive a significant financial leg up this year in the form of stocks and shares Junior ISAs, which would be theirs to access for the very first time and spend how they see fit once they turn 18.

But they are in a minority. In the UK, only 31% of Junior ISAs are in stocks and shares, with the remaining 69% in the cash variant. Given that the stock market has tended to outperform cash over very long periods of time, parents squirrelling away the same amount in cash, will have been running against the wind.

The FTSE 100 and MSCI World index are up 240% and 487%, respectively, over 18 years [to 30 June 2021] compared to 43.5% for cash (represented by ICE LIBOR 3 month GBP), according to Morningstar data.

Some are in line to receive a sizeable pot. The value of the average Junior ISA portfolio of the average 17-year-old on interactive investor, the UK’s second-largest DIY investment platform, has assets totalling £19,366 on average. Of this, only 9% (£1,700 on average) is held in cash and the remaining 91% (£17,683 on average) is tied up in investments.

At age 18, Junior ISAs are rolled over into an adult ISA. But many choose to remain invested.

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “For all but the lucky few (and there will be some amazing success stories), Junior ISAs aren’t going to cover the full cost of university. But if you’ve been lucky enough to amass a decent stocks and shares Junior ISA pot, it could shave a sizeable chunk off your student debt. Whether you use it for university is much more difficult and personal.

“The average debt among students who finished their courses in 2020 and took out student loans to cover the cost of tuition and maintenance costs was £45,000* - which is over double the average assets held by Junior ISA account holders at age 17 on ii.

“But the government only expects that 25% of current full-time undergraduates who take out loans will repay them in full. While funding university yourself is a laudable aim, it is not the most financially cogent approach to take in many cases, as many graduates won't need to repay the full debt. And the longer you leave your money invested, the greater the potential for long-term returns – historically speaking at least.

“By the same token, the interest rates on student loans can be eye-watering, so there are no easy answers. Those who are lucky enough to have a choice, and decide against a loan, are essentially taking a punt on their likely future earning power. And that’s tricky!”

Looking at our broader ii Junior ISA customer base, Scottish Mortgage (LSE:SMT)investment trust tops the bestsellers' list since the start of the year (to 23 July), ahead of Fundsmith Equity in second position and Vanguard LifeStrategy 80% Equityin third.

Equities account for half of the top 10, with Argo Blockchain (LSE:ARB)ranking highest in fourth position.

Top 10most-bought investments in Junior ISA accounts on interactive investor this year (to 23 July 2021)

interactive investor offers Junior ISAs free to customers, who can have as many free Junior ISAs as they have children. But Junior ISAs are not a standalone product.

Notes to editors

* Student loan statistics, published Wednesday 23 June 2021 by House of Commons Library: https://commonslibrary.parliament.uk/research-briefings/sn01079/