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Blog | A new year’s resolution to change your children’s future

Fiona Fang
Senior Associate Adviser
11 Jan 2022

A new year is a new beginning. As the holiday season is winding down, it is a great time to start thinking about goals and new habits to build this year. While you may have kept a batch of new year’s resolutions for yourself, there is a resolution idea that may change your kids’ lives forever: investing for them.

A recent survey shows around 270,000 Australian children under the age of 12 are investing in shares, cryptocurrency, or savings accounts. This reflects a trend towards more parents teaching their children about financial concepts. It’s becoming popular that people give financial gifts to kids and grandchildren at the holidays or for their birthdays, instead of toys.

Investing for your children is an awesome way to set them up financially for their future. Stashing a little bit of money away consistently adds up, especially when you invest it.

If you are putting away $50 a week for 20 years, that is going to be $52,000 by the time you have finished. If you chose to invest that money instead (working off an 8% annual rate of return), over 20 years you would have $118,981.

These funds can be used for your kid’s future education expenses, to buy their first car, or to help them get into the property market down the track.

Not sure where to start? Here are some of the most popular ways to start investing for children.

Savings account

Opening a savings account is a great way to introduce your children to banking, saving, and interest. Take the opportunity to talk about money with them and educate them on how money works in a digital world.  Setting up an automatic savings plan with direct debits would ensure money is set aside for your children. What are they interested in saving for? Encourage them to set a savings goal, and work out together how much they’ll need to save each week, and then establish how they are going to stick to it.

Investing in ETFs or LICs

In today’s low-interest environment, it’s hard to find a savings account paying over 1%. Instead of using a bank account, you could consider investing for your children.  Investments such as exchange-traded funds (ETFs) or listed investment companies (LICs) will give you an opportunity for growth and diversification, at a reasonably low cost. While minors can’t open a share trading account themselves, you can hold investments in trust for them. When they turn 18, the investments can be transferred into an account in their own name. It is also worth thinking about a dividend reinvestment plan (DRP). For children who are unlikely to need the income, dividends can be reinvested to obtain more shares without the cost of brokerage.

Once the investments are underway, sit down with your child to talk about the investments you purchased for them and show them the results of letting the money grow untouched.

Investment bonds

Investment bonds are an investment structure, like your superannuation, that allows you to invest in a tax-effective way. Returns are taxed at 30% which is great for high-income parents. As long as you hold on to the investment for a specified timeframe and make no withdrawals, generally, you can pull your money out free of capital gains tax.

So don’t wait! By starting to invest for your children today, you are placing them in a position for a lifetime of compound growth!

Please remember this blog is not intended as financial advice. For advice tailored to your personal circumstances, please speak with your financial adviser at Hewison Private Wealth.

Hewison Private Wealth is a Melbourne based independent financial planning firm. Our financial advisers are highly qualified wealth managers and specialise in self managed super funds (SMSF), financial planning, retirement planning advice and investment portfolio management. If you would like to speak to a financial adviser on how you can secure your financial future please contact us 03 8548 4800, email info@hewison.com.au or visit www.hewison.com.auPlease note: The advice provided above is general information only and individuals should seek specialised advice from a qualified financial advisor. The views in this blog are those of the individual and may not represent the general opinion of the firm. Please contact Hewison Private Wealth for more information.