The best things in life are free; one of the best things you can do for your kids is prepare them for adulthood by teaching them about money. For little more than your time and transparency, you can set your kids up with good financial habits before they are thrust into a world that encourages spending over any other money behaviours.
Our children look to us to learn how they should navigate the world around them. Whether they stick to those ideas is another matter, but our input and actions can be extremely influential; for better or for worse.
Physical piggybanks may be a little outdated for some, but they are very good for creating a visual reminder of where money can go. If you give your kids an allowance, you should be encouraging them to portion it out into ‘piggybanks’ for items like “spend”, “share” and “save”. This helps set up good habits… particularly if you can keep them from dipping into the “savings” out of turn!
This could also be a good time to start a KiwiSaver in their name and start contributing small amounts. Be open and transparent about the process so they know:
1.) This is for later in life (when buying a first home, for example), and they will not be able to access their account outside of the usual KiwiSaver circumstances.
2.) Steady contributions + compound interest make for significant returns over time, not to mention combat inflation’s effects. Keeping up with KiwiSaver is a lot easier than trying to find a lump sum later in life.
3.) KiwiSaver is free to join and the options are flexible, so they can change their fund, strategy or contribution level later if they wish.
For many young Kiwis this is the first and/or only exposure they will have to the financial markets. It’s a great opportunity to not only get them used to making regular contributions before they are actually in the earning phase of life, but also to show them that while markets fluctuate, they are best to stay in it for the long-haul. They will also be able to see statements explaining returns, any fees, and summary of performance – which will build a foundation of investment knowledge.[i]
For shorter term goals – say a car in future – or just in the interests of creating a savings avenue which can both take advantage of compound interest and be accessible at any time should they need it, consider a diversified tax-efficient PIE fund with a low initial investment threshold.
Another key area to hit is around credit cards and debt. Once they reach the age of 18 they can open credit card accounts, enter into financial agreements and make contracts on their own. Guide them in making smart financial decisions in young adulthood. If you feel comfortable doing so, open a joint credit card account that's in your child's name – but make them responsible for paying the bills each month.
You can start smaller too. Teaching kids about money can be as simple as including them in the conversation. If you are at the supermarket, you could have your little ones help you find the specials or look for a cheaper brand. If you have a brand, you won’t compromise on because of specific flavour or quality, that can be a great time to talk about trade-offs and how to find savings elsewhere to compensate for these preferential lines in the sand.
Much like charity, good money habits start at home. Having everything laid out and transparent will help them have a holistic view of what things cost, and where they can potentially reduce these.
Whether your goals are to help set up your children (or future children), or even just retiring in comfort with options, a good place to start can be having a chat with the professionals to assess your current situation. They can guide you through the best options in KiwiSaver or other investment options, face to face with a trusted local fiduciary.
by Taraia Robin (Financial Adviser at Stewart Group)
· Taraia Robin (Ngāti Kahungunu ki Heretaunga, Ngāti Porou) is a Financial Adviser at Stewart Group, a Hawke's Bay and Wellington based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, Wealth Management, Risk Insurance & KiwiSaver scheme solutions. Article no. 342.
· The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz
[i] https://www.moneyhub.co.nz/kiwisaver-for-kids.html
