Forget toys, tell Santa to bring financial gifts

Forget toys, tell Santa to bring financial gifts

Much of that will go on useless gifts that are quickly recycled into the local school's bring-and-buy or soon be gathering dust in the cupboard. The charity WorldVision estimates that more than £2bn worth of pointless gifts will be exchanged this Christmas, and points out that anyone with children will know how quickly the latest must-have toys lose their allure.

So why not buy something for your children, grandchildren or other young relatives that will be appreciated in years to come? An investment trust may not excite your grandchildren as much as a Nintendo Wii, but it should appreciate in value, at least over the long term, and the recipient will be able to put it towards something useful, like a deposit on a house or car.

There are financial products aplenty to suit most people's appetites for risk. As a rule of thumb, the younger the child, the more risk can be tolerated, and the evidence shows that over the long term shares will do better than bonds, property or cash, although there are likely to be gyrations along the way. Present-givers are unlikely to want to give something that will quickly fall in value - and with the US economy slowing rapidly and our own regulators warning of a significant slowdown, there is a strong risk.....continued below

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Most appealing, perhaps, are Premium Bonds. Although the average return is not attractive, there is the chance of winning one of two monthly £1m jackpots or more than 1.6 million other prizes - £1.4m of them worth just £10. The odds are better than the National Lottery but, at 21,000 to 1, are still not great. The minimum investment is £100 and the more units you have, the greater your chances of winning. Prizes are free of tax.

National Savings, which operates Premium Bonds, also offers Children's Bonus Bonds and Index-Linked Savings Certificates, both tax-free, with interest rates of around 4 and 3.2 per cent respectively.

Philippa Gee of financial advisers Torquil Clark points out that these investments will be made in the child's name and that some parents and grandparents may prefer to keep control over the money to ensure that it is spent wisely when the beneficiaries get their hands on it. That is also a drawback, she thinks, to topping up the child trust fund - set up with £250 from the government for every child born after 1 September 2002 - with the maximum of £1,200 permitted every year. These funds are in the child's name and become their asset when they turn 18.

That, says Gee diplomatically, 'may not create the best outcome, especially if you know that you need the money for a particular event and don't want it used for something else'.