KIWISAVER FOR KIDS: Is this the best investment tool?
Jun 17, 2018
READER QUESTION:
KIWISAVER FOR KIDS: Is this the best investment tool? - Rochelle
THE HAPPY SAVER ANSWER...
Yep, I would say it’s one of MANY investment tools you can put in your little kiddies tool box.
I have a daughter who is now ten and I signed her up to a KiwiSaver Growth Fund when she was born. It was darn hard holding her little cute pudgy hand and getting her to sign the paperwork I can tell you, but we got there in the end!
When I first signed her up she received the $1,000 from the government (since discontinued I’m sorry to tell you) and she is currently still too young to receive any member tax credits; these won’t start until she is 18. Since she was born, every month without fail, her dear old Mum and Dad have been putting money into her KiwiSaver fund for her. In her first year or two whanau added some lump sums to the pot as well but ever since we have been consistently putting $40 per month into her fund. I even switched her to a different provider recently (Simplicity Growth) to avoid higher fees. She currently has $10,056 in there, up $1,411 on last year as the fund is performing really strongly at the moment. Not bad when you are ten years old. Not bad at all!
I did a VERY back of the envelope calculation (well, Google did) and if I projected this current balance forward to the grand old age of 44 (my current age), earning 7% interest (which going by current fund performance is very conservative) and only ever putting in $40 per month, compounded monthly, she should have $175,017.66 by age 44. Now, I didn’t take inflation into account, my mathematical ability can only take me so far!
If I opened up a KiwiSaver bank statement TODAY, at the age of 44, to discover that MY Mum and Dad had done this for me I think I might just about CRY! What a gift! What a head start! What a load off my own freaking mind that I don’t have to stress so much about saving for my retirement. And all for $40 a month!
The reality for my own daughter is that when she is earning and able she will of course take over payments into her own fund and when she is 18 (as long as the government stops changing the rules) she will also get the member tax credit of $521 per year, so I fully expect that with employer or voluntary contributions this fund will grow to be MUCH MUCH LARGER than I have guesstimated above. And when she one day decides to buy a house my intention is for her NOT to look at this money as a house deposit because this is not earmarked for that purpose! This is her retirement fund!
You see, when she was born we ALSO started up a savings account for her which we have been trickling pennies into as well. This has now evolved into an index fund and THIS will be her house deposit/university fees/O.E./start a company/join a commune money. Who knows! But as a parent it will be nice to give her some options.
Now, please don’t be concerned that by doing this I am raising an entitled brat who is simply handed everything on a fine silver platter. Far from it. If you have read any of my blogs you will also know that at the same time WE are preparing for her financial future we are also teaching our daughter how to be good with money and already she is contributing to these accounts from her own pocket money. Every time she earns a dollar she must save 50c.
So Rochelle, to answer your question “Kiwisaver for kids: Is this the BEST investment tool?”
A toolbox containing only one tool would be no good. But if KiwiSaver was just one of the tools in your child’s tool box then there is no doubt in my mind that it is worth having.
Thanks for a great question.
