Retirement, or even buying a house, probably isn’t top-of-mind for most kids.
But that doesn’t mean KiwiSaver isn’t a useful tool for them.
Used well, KiwiSaver can be a great way to give young people insights into the world of investing, and how it might benefit them through their lives.
Here are a few things to think about.
Starting out
Children of any age can join KiwiSaver. If they are under 16, the application form usually needs to be signed by both parents. Between the ages of 16 and 18 it is often possible for just one parent to sign, along with the child the account is for.
Until they are 18, they will not qualify for employer contributions or the government’s member tax credit.
If they are in work, they can make contributions from their wages in the same way that any other employee does. Otherwise, they – or their parents – can make voluntary payments as it suits.
Why it helps to start young
When young people start investing in the early part of their lives, it gives them a huge asset to use to their advantage: Time.
Over the years, their returns compound year-on-year. In some cases, that can mean they end up with larger balances when it comes time to withdraw than people who started later but contributed a higher amount.
While they are not earning much, or at all, they will probably be on the lowest tax rate, which means it is probably more tax-effective for them to invest in their own names than have their parents invest on their behalf.
The other big benefit
As well as accumulating investments, KiwiSaver can help young people to build up their knowledge.
Taking an interest in their investments and the performance of their KiwiSaver fund can help kids to understand many key financial concepts that will help them in later life.
These are likely to include the process of saving – and how regular contributions can add up. By looking at where their KiwiSaver fund invests their money, they can also understand how investments work, and how they might be expected to behave.
KiwiSaver funds will also expose young investors to the idea of risk and return, and how they work together. They will also learn the difference between a bank account and KiwiSaver.
If young people understand this early on, it can give them a headstart to make other good financial decisions through their lives.
Get kids involved
To keep your kids interested, you could share updates from their provider with them, show them how their fund is performing and look at the performance of markets, both in New Zealand and offshore.
It could be fun to run some numbers about what sort of outcome they could expect at certain contribution levels over a longer time horizon. Some of the numbers can be quite impressive!
Want to chat?
If you would like to talk about starting a KiwiSaver account, or look at the options available to you, get in touch with us. We can help answer questions you might have about the scheme and how it could fit in to your financial Iife, and that of your kids.
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.
