We spend a lot of time thinking about our children’s future. Will they ever be able to afford a house? Will they end up with a huge student loan? And how will we cope if they default to the ‘Bank of Mum and Dad’?
Setting your kids up with a KiwiSaver account could be a helpful way to start teaching them about investing, and the importance of saving for their future. However, there are some important considerations when it comes to opening a KiwiSaver account for those under 18 years.
Benefits of setting up your kids with KiwiSaver
For the average parent, opening a KiwiSaver account is more accessible than starting many other types of investments. There is no minimum investment required and the fees are generally lower than you'd be charged for a similar investment outside the scheme.
Getting your kids started early means their savings will be invested for a longer time, and so they’ll have the opportunity to earn more returns and build up their savings for when they finally need them.
Perhaps one of the best things about setting your kids up with a KiwiSaver account, is having a practical way to show kids what investing is and how they can benefit from regularly putting a little bit of money away.
Research^ shows that the early experiences children have with money can shape their financial behaviour as adults - and the sooner they start learning, the better. By age 3, kids can grasp basic money concepts, and by age 7, many of their money habits are already set.
With Generate, you get access to your own online account, so kids can watch their KiwiSaver savings grow overtime.
‘KiwiSaver for kids is great long term, says Generate KiwiSaver Adviser Ken Knight.
‘It teaches the basic principles of investing smaller amounts and how they add up long term with the ‘magic’ of compounding interest.
‘I have all our daughters in KiwiSaver, as it ticks the boxes of a diversified managed fund with the protection of the KiwiSaver framework and regulation. I know that when they start working they will have a head start on their first home deposit and will be well on their way to gaining financial independence.’
Understanding the considerations and limitations
However, it’s important to note, that while you can open a KiwiSaver account with no minimum investment, you will still be charged annual fees for your account and a $3 monthly administration fee. This is why we generally only recommend opening a KiwiSaver account for under 18’s, if you (or they) plan on regularly contributing to the account – it doesn’t have to be much, but a regular contribution will help you realise the benefits of compounding returns.
You can make lump sum transfers to an account as and when you like or set up an automated direct debit.
And while KiwiSaver has some great benefits that no other investment offers – some of these aren’t available for those under 18 years. For example, to be eligible for the annual Government contribution you must be between 18 and 65 years, and even if you have a teenager who is working, their employer is not required to contribute 3% to their KiwiSaver account until they turn 18 (although many do anyway).
It's also important to remember, that with KiwiSaver your investment is ‘locked in’ and can’t be withdrawn unless it’s for a first-home or retirement (at 65 years).
What’s right for you?
There are some great benefits of opening a KiwiSaver account for your children, although everyone’s situation is different.
If you’re looking for a more flexible investment, without any minimum investment timeframes, an alternative could be a Managed Fund.
Find out more about Managed Funds here.
Talk to a Generate adviser about your child’s KiwiSaver scheme or use our KiwiSaver calculator to see how a little bit often can grow over decades.
Disclaimers: No part of this blog is intended as financial advice; it is intended as general information only. To see our Financial Advice Disclosure Statement, please see Generate FAP Disclosure Statement. For more information about the Generate KiwiSaver Scheme please refer to the Generate KiwiSaver Scheme Product Disclosure Statement. For more information about the Generate Managed Funds see the Generate Unit Trust (Managed Funds) Scheme Product Disclosure Statement or the fund updates. The issuer of both schemes is Generate Investment Management Limited and the Product Disclosure Statements are available at generatewealth.co.nz/pds. Past performance is not indicative of future performance.
See research from the Dunedin study here