A future for your children
What kind of a future do you dream of for your children?
In these uncertain times, it’s hard not to worry about whether our children will have the things many Kiwis took for granted – such as a good education, an OE and eventually a house.
So how can you give your children a financial head start?
The more you plan now, the more likely you are to be able to help your children out when they need it most.
Three questions
The first step is to choose a goal.
Get clarity on why you are investing. For example, is it to support your children’s education or housing?
Then ask yourself these three questions:
How much will you need?
How much can you save?
How long do you have to invest for?
Investing or saving?
If your goal is more than three years away, we generally suggest clients look at investing rather than savings because this will improve their opportunities for a better return.
Investing even a small amount regularly on your children’s behalf can make a big difference to their ability to reach their goals in life.
And the earlier you start, the more time your investment will have to grow.
So what are your options? Two options worth considering are KiwiSaver accounts and managed funds.
Option 1: KiwiSaver
Setting up a KiwiSaver account in your child’s name is one way to help them have a brighter future.
Contributing a small amount to a KiwiSaver account regularly can mount up to a significant nest egg over time.
When your children turn 18, they can gain $521 of free government money and every year, providing they’re eligible and contribute $1042 annually.
But KiwiSaver funds are locked in – you can generally only withdraw them for a first home or retirement. Your kids won’t be able to access them for other goals, such as studying, travelling or buying a car.
Which leads us to...
Option 2: Managed Funds
Managed funds can include a mix of investments, such as shares, cash, bonds and property.
Your money is pooled with other investors’ money, and a manager chooses where to invest it.
Most managed funds are ‘liquid’ investments, which means they can be converted into cash at short notice without there being any significant impact on their value.
KiwiSaver accounts are a type of managed fund, but withdrawals are usually restricted to first homes or retirement.
Managed funds are more flexible than KiwiSaver, but provide similar benefits in terms of accessing potentially higher returns than a bank account.
You can make regular investments, decide how and when you contribute, and choose a fund to suit:
your goals
your attitude to risk
when your children might want to use the money
