Is your little one ready to ‘invest’? It may sound like a weird question, but as a parent, you may have given your child’s financial future a fair bit of thought. And here in New Zealand, KiwiSaver is one of the most popular ways to get started with long-term savings.
Here’s why enrolling your children into the scheme can be a gift for their future.
A financial head start
Setting up a KiwiSaver plan for your kids can provide them with a financial head start in multiple ways:
- When the time comes for them to enter the property market, it can help through a withdrawal for the first-home deposit, or through the First Home Grant. The Government helps out certain eligible first-home buyers in New Zealand with their deposit – head over to Kāinga Ora – Homes and Communities to learn more about how this can work for your kids’ future home.
- At retirement, it can provide a good nest egg for them.
- It can be a great way to have kids be involved in financial literacy conversations – like money lessons and tips, understanding concepts that they may need to know later in life, and fostering financial wellbeing and planning mindsets.
The magic of compound returns (and time)
As you know, the KiwiSaver scheme is a long-term investment, mainly designed to grow retirement savings. And like any other investment vehicle, your balance can increase due to compounding returns, not just the contributions you make. This means that you earn interest and other returns on the interest and other returns you receive that are added back into your balance (instead of being paid out to you as income), which multiplies your money at an accelerating rate.
With this in mind, one of the key benefits of early enrolment in KiwiSaver is that your kids have a long investment horizon ahead of them, and the ‘compound return effect’ on their side. Also, being in a KiwiSaver plan for a longer time means that when it comes to market volatility, they can ride out the future storms and make the most of the subsequent bounce-back.
Encouraging money habits
One day, your kids will be grown-ups, and good money habits learned early on can be beneficial for their future. When you lead by example, conversations about money can be much more effective.
Plus, having their own accounts can encourage your kids to practise good money habits, like:
- Saving up regularly and responsibly.
- Understanding opportunity cost (weighing the outcomes of their money decisions).
- Investing in their future, and the value of delayed gratification.
- Thinking about the long term instead of just living in the ‘now’.
Making their money work harder
Just like all types of investments, decisions around KiwiSaver plans are driven by your financial goals. It’s a good way for them to learn about the concept of making their money work harder for them. The kids can be encouraged to think about “growing money”, rather than spending or saving alone.
Plus, when they finally start contributing on their own, they may want to learn more about investing, money management, and how to set their own financial goals.
Note: If the child is under 18 and employed, they can’t join KiwiSaver through their employer, they can only join through a provider (or through an adviser who works with your provider of choice). And, there is no annual Government contribution for anyone under 18.
Like to know more?
If you’re thinking of setting up a KiwiSaver plan for the kids, we are here to answer all your questions. Get in touch anytime.
Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.
