Should you put stocks in your children’s stockings this year? With Christmas around the corner, most children would gawk if you told them that for their present this year you’d opened them a JISA and put in the £500 you were going to spend on a PS5 and would do so every year until they were 18. They’d probably have the right hump if you also told them that instead of the usual cheque from Nanny and Grandad the money had also been put in their JISA, and they would be doing the same on their birthday. Plus as an added bonus, they couldn’t access the money till they were 18. But, they’ll probably thank you in the long run. Why?
What is Beanstalk?
Beanstalk is a completely unique family savings app that we designed to make it really easy for parents and grandparents, other friends and family, to build a nest egg for their kids’ future.
In my case, I can open an ISA for myself but then open Junior ISAs for my kids as well and see all of them on the one home screen of the app. There is also a unique family invite process where I can send an invite across to granny, grandpa, aunt, uncle, and if they accept, they’re linked into the children. They can put money directly into the kids’ Junior ISAs from their own app. So we have all the family coming together to help build a nest egg for the kids’ future, which is completely unique.
Why did you set Beanstalk up?
It grew out of our existing KidStart business, which I founded about 12 years ago now. Kidstart is a shopping club for parents, where you shop at partners of ours, John Lewis, eBay, you get money back and put into whichever child’s savings account you had set up.
Gosh, I need to put money away for my kids’ future
When KidStart launched, it was at the time of the Child Trust Fund where the government gave £250 to every child who opened it. We would put money into child trust funds or bank accounts or building society accounts, whatever they had for them. We talked a lot to parents in the days when you could go to real things, pre-Covid, you’d go to The Baby Show and chat to parents, and almost universally, parents would go, “Gosh, I need to put money away for my kids’ future. I know it’s going to be hard for them. I know there’s college fees, housing costs. It’s going to be more difficult for them than it was for me. I understand the need to try and build a nest egg for them to give them the best possible launch into adult life.”
But when I actually look at what parents do, very few of them were doing enough. They might open a little savings account somewhere and put a few pounds in it, but that was it.
Not only that, when they did make the choice, they were often just putting in the cash. Be it a cash Junior ISA, but mainly cash savings accounts. When you’re saving for 18 years, cash may not be the right thing to do. I saw a piece of data the other day and I think only 4% of kids have a stock and shares Junior ISA. That’s pretty much the only stocks and shares product for kids’ savings. It implies that the vast majority of kids don’t have investment products for when they’re 18; they have cash products.
We looked at this and said there’s a problem here. When we talked to parents, what we found was they were often put off by the complexity of the existing investment products. Many of them would have minimum contributions. The opening process could be difficult. Many of the stock and shares Junior ISA players weren’t even online until recently, and even cash Junior ISAs, the top ten on Moneyfacts I think eight of those, you had to go into a branch to open or be an existing customer. It was rather like the fintech revolution had just passed this whole space behind.
We said, look, we think there’s a better way of doing it. We know parents. We helped hundreds of thousands of parents save over the years through KidStart. We understand what makes them tick and we think we can do this in a better way, which is where Beanstalk came from
How’s the business going so far?
It’s going really well. We launched it about a year ago. We’ve had lots of signups and the business is growing rapidly. We’re not public about the numbers now but it’s growing rapidly. Obviously, some have come from KidStart; we have a readymade audience there. But then lots of people have come in from outside.
I think the nice things we’re seeing is people really like what we’re doing. TrustPilot’s, I think, 4.6. App Store, Play Store, both four and a half stars rated. The feedback we get is very positive. Something like 30% or 40% of the parents who are opening Junior ISAs for their kids are asking granny, grandpa, others to save, so we’re getting that family thing.
The whole design of it is to try and make it simple. So if you want to go and open a cash Junior ISA, you have to go to the branch with a birth certificate. You can open ours in a minute or two. It’s all on your phone.
At the moment, if you want to open a stocks and shares Junior ISA, many of the existing providers will have minimum deposits, from £100 a month. For many parents, that have just had a kid, they go “I’m not sure I want to sign up to that regular contribution”. So the flexibility of ours is you can open an account with no money and then top it up when and if you feel able to. We’re hearing from people that they really like that flexibility, to be able to put money and get granny and grandpa to contribute, to get others to contribute, with simplicity.
How does Beanstalk compare to JISAs from existing providers like Hargreaves Lansdown?
We are totally focused on helping families put money away for their kids.
I mean not to knock Hargreaves Lansdown, a very good business, has been very successful at creating investments in lots of ways. But our focus on family means we do things a little bit differently.
One of the things people told us is they get put off by the complexity. We make it really simple. Really simple to open, a really simple investment choice.
Essentially, we do cash and shares.
So we have two funds; we have a money market fund and a shares fund. They’re both low cost. The money market fund tracks the money market and the shares fund is a global tracker fund, and we offer people a choice.
We have a little slider where you can say I want 100% shares, or 80% shares 20% cash. We don’t allow people to go below 20% equity, because if you’re so concerned with risk, you are better putting into a building society or a cash account because they will pay more than a money market fund. If you want to put in cash, you should go do that.
We try and protect people from making the wrong decision, as it were, by making that choice really simple.
I had someone who’s a pretty sophisticated investor, relatively senior in a retail bank, I was chatting to him about what we were doing before we launched and he said, “I went and spent two hours looking at all the options for kids’ savings account. I’d just had a kid and wanted to work out what to do.” He said, “I found it exhausting after two hours and gave up because you have to a choice of 3,000 shares you can invest in. Well, I don’t want that.” So, we try to make it really simple and then give a bunch of tools that you won’t find on Hargreaves Lansdown.
You can then invite family members really simple to save. We’re just launching it this week – it’s in beta at the moment, which will be up and running properly in the next ten days – a gifting page, which is a bit like a GoFundMe for your child. You can send people there for birthdays and they can put £50 as a birthday present with a message. Those sorts of really simply ways to help you save are not things you’d find on the existing investment platforms. Because of course, they’re serving ISAs, pensions. We’re very focused on how do we help families to build a nest egg.
How does beanstalk compare to pocket money apps?
Well, the pocket money apps are serving a different need too. They’re often pre-paid cards. They don’t pay any interest. They’re helping to teach your kids about pocket money and saving and chores and the like, giving them responsibility to have a card they can go and spend money. But they’re not really savings products, per se. They’re a way of, I guess, depending on who you talk to and which company you’re talking to, they’ll have a different articulation of it, but a way of helping educate your kids as to spending online.
Our audience tends to start from the age of zero. For new parents, one of the first things they think about is putting money away. Pocket money cards, you’re probably talking the age of nine, ten years old by the time you get to that point. Our goal here is to help build a nest egg for your kids’ future so that when they’re 18, they have a lump, be it £50, £500, £5,000, £50,000, that helps give them a little bit of a start in life.
Do children get access to the Beanstalk app?
Down the road, we will launch other products. At the moment, the product is obviously a parent product. The parent sets up the account. I hear from users that they will share it, particularly with older children, they’ll show what’s going on. You can see the performance day by day, you can see the amount with the value going up or down, depending on the market. But we don’t have a child login.
As we grow and develop the business, we plan to add features like that in a more educational side. My view, when you start something like this, you start simple and expand, rather than the all-singing, all-dancing…
What’s your view of savings accounts versus investing accounts?
Many people say it, the right thing is to be in the market. But it’s not necessarily for everyone.
Parents worry, “I’ve got money for the kids. I don’t want to lose that money.” So there’s a natural and quite understandable nervousness about investing your kids’ inheritance, for want of a better word.
But of course, what people who do that don’t necessarily think about inflation – that you’re earning 1% interest and inflation rates, as they were last month, at 4%, what you could buy with that money now and what you can buy with that money in the future are not going to be the same thing.
When we were doing research before we launched the product, we had focus groups and I talked to an accountant, who worked locally. Had a good chat, she had an 18-month-old, and we were talking about this and she said, “Well, I save money for my kids, I put it into a high street bank. I put £100 a month in,” which is a lot, and that’s an unusual amount of money. “And it’s great but I don’t want to lose my money.” And I say, “Well, what do you do with your pension?” She said, “Well, of course I don’t put that in cash, I put in shares because…” And I said, “Okay, so your kid’s just over one, 17 years left on that. You’re retiring in how many years? 24 years?”
There is not much difference between 17 years and 23/24 years, you can see the light bulb go on in her head and she says, “Ah, yeah, no, you’re absolutely right. Why am I happy for my pension to be in investments, because I know that’s the right thing to do, but not my kid’s savings?”
Markets can go up and down but you’ve got to be prepared to take risks. But with all the data, which is just long-term, and over a lifetime, over an 18-year period, you’d be very unlucky if cash outperformed shares. That has happened, but not very often.
Don’t let the perfect be the enemy of the good, I think is the expression, which I think a lot of people try and chase the market. The times I’ve gone oh, I must put some money to work. And I go, oh, the market’s a bit high now, I’d better wait. You put it off, put it off, put it off, put it off, and as a result, miss out.
As opposed to just saying, actually, do something.
We take the view that we want something that’s simple, that’s helping parents, and they have to make the decision where they want to put their money, but try and make it simple enough that they can choose and can see the impact of different things. Over an 18-year period, you might have done better if you’d found Japanese equities or an emerging market, you might’ve done better, but actually, if you’ve got a well-diversified, low-cost fund, you’re probably going to do just fine unless things go badly wrong.
Doing something is better than doing nothing. And however small. Put it away for 18 years.
What do you think is the biggest mistake that people or parents rather make when planning to save or invest for their children’s future?
I can only speak to the mistakes I’ve made. There are lots of parents out there and they do lots of right things, and I can’t judge them. But we’ve touched on some of them, which is don’t let the perfect be the enemy of the good. It’s better to do something than do nothing. We’ve talked a lot just now about cash versus shares. I think understanding the implications and being prepared to take a bit of risk. Don’t worry about losses. Don’t go crazy but you do miss out if you just stick something in cash.
When I look at things that I did 25 years ago and forgotten about, and then 25 years later, you go oh, great, they’ve done great. They’ve done well. So don’t get overly focused on the risk. Think about the upside as well.
I do think putting things into the child’s name is important. Otherwise, you’re tempted to pull it back to yourself. Even if you’ve put £500 in and left it, it could grow to £1,000 or £1,500.
I think the other thing people do, for example when the markets went down a couple of per cent on Friday. We have this allocation, where you can allocate between cash and shares and I can almost predict that on our app – they’ll be more allocation changes today, because people have this kneejerk reaction “The market’s gone down, I must change the allocation.” Now, again, for a long period of time, my personal view is, actually, just leave it. Don’t worry about it. Don’t try and chase the dips and the troughs because you’ll wear yourself out doing it. You’ll almost certainly make the wrong decision.
You can’t time the market. Don’t worry about not timing the market. That dip of 2%, you’ll look back in ten years’ time and you won’t even be able to find it on the chart.
Do you have a favourite book on investing or money management, that you think people would find useful?
Well, that’s a difficult one because I don’t really. I was thinking about this and the thing that actually struck me, I remember, was about 20 years ago. The company I was working for then, a large American company, and the CEO in his office had a chart on the wall. The chart I remember and actually, was a little bit behind, why we launched Beanstalk, why we did it the way we did it. The chart was from the 1900s to 2000s, the value of $100 invested in 1900, if it had been put into cash, bonds, gold, property, stock and shares, the DOW. It had the hundred years ups and downs.
Clearly, it wouldn’t be rocket science to say that stocks and shares outperformed all of them. But the really amazing thing about it was you looked at the Great Depression, the 1930’s Wall Street crash; you can hardly find it on the chart.
I started work in 1987, just as the Black Friday or whatever it was, the original Black Monday when there was a massive crash in 1987. You can’t see that on the chart. Understanding that the long-term markets have outperformed many of the things really stuck with me, and as I said, better to do something and have some money there, if it’s for the long term, than do nothing.
Julian Robson is Co-Founder of the Beanstalk Investing App