Standing at my engagement party last weekend, surrounded by family and friends, made me realise how quickly life happens. I know there will be one reader, not to name names (cough cough), who probably thought I would be a child forever when she first met me 10 years ago. I was young, had just moved to Sydney and knew everything. Yep, I actually did.
Like most Gen-Yers living in Sydney, my weekends were defined by the outfit I wore and degree of hangover on Sunday. Every wage increase was matched with an equally substantial raise in my taste of clothing and before I knew it I was in the Sydney rental rut with an amazing closet, shoes to die for (literally!) and hardly any savings. What did I care though, I was young, single and by all accounts bloody fabulous. Or so I thought.
Hindsight, baby boomer’s favourite word, made me realise that my lack of investment knowledge stemmed from my childhood. Doesn’t everything? There’s a part of me that wishes my parents were more savvy on my behalf but alas they weren’t and here I was at 24 with a repulsive HECS debt that made me want to flee the country only to never return (yes, I actually considered that) and cry like a petulant child every time I saw my savings account. Now, I’m not innocent in all of this either. Online shopping gave me something that a relationship never could – love; and a closet that I still admire to this day. How lame does that sound? The only problem, it wasn’t an appreciating asset and my cost-per-wear ratio was dramatically decreasing with each new purchase. My dreamland of naivety was quickly catching up with me and I needed to do something. Fast!
Lesson #25873491 – investing in your children’s future is a win-win and can take away some of the uncontrollable stresses that adulthood brings. Let’s be honest, there’s always a day that you don’t want to ‘adult’.
Some of our FFT readers, the more forward thinking of the group, have already started asking questions about investing for their offspring. Some have even taken it one step further by buying into kid-friendly shares. Go you – so proud! Whether you are a stage mum, soccer mum or maybe a PTA mum, saving for our children’s future education and life post high school is one of the biggest expenses we will have. Maybe you’re not ready to take the silver spoon out just yet or you’re a parent that believes adulthood starts at 18. Whatever the case, don’t wait until their 17th birthday to start saving. Unless of course you win the lotto, but nobody should have that option as Plan A!
So, what is there to consider?
1. Start simple
Let’s not get ahead of ourselves – and open a savings account in their name with a decent interest and low fees. Compounding interest is a powerful thing and will give the post-18 nest egg a good head start.
The super savvy mums and dads out there are probably already thinking about starting an account in their little Billy Bob’s name and using it as a cash asset tax haven. STOP! Just be sure to check the tax laws on this. I’m not an accountant, but there are super sneaky taxes that are applicable. So annoying.
2. Don’t be afraid to invest
You may choose a low-cost, low-risk index fund like their parents (obvi), or an “Invest-a-nanny”, and no, it’s not the husband-stealing-hot-nanny I’m referring to!
3. Education funds – be warned.
These types of funds tend not to be flexible and have super low returns if you choose to withdraw when your child doesn’t go to Uni. To kids I would say “School and Uni are the best years of your life” but to my wallet, I’d probably sob about why I wasn’t born with Steve Jobs’ brain and Miranda Kerr’s legs. Them the breaks. Bottom line – go to uni and invest early, not everyone is a freak of nature! And I mean that in the nicest possible way.
Now, no one likes reading the fine print, but I wanted to make it a tad more obvious because you don’t want to get caught out:
- If you purchase shares in your munchkins name, it’s theirs. Like legally. BUT, you may run into issues when administering the account through the share registry. Wouldn’t be my first option and the tax man is not nice in this scenario. Check point 3.
- If you purchase shares in your kids’ name but register as the legal owner to assist with the administration of the account, then legally, you co-own it. Also takes out a lot of paper work.
- Don’t forget about Tax. Nothing is more certain in life then death and taxes, especially when it comes to investing! Where a child’s unearned income exceeds $1,445 per year (as at 2017), all unearned income is taxed at the highest rate of 47 per cent. So unfair but true.
Ultimately it’s never too early to teach your young ones about money. Contributing to investments on their behalf as well as teaching the importance of saving through ‘pocket money’ is invaluable. Do you remember how grown up you felt when you washed dad’s car and got a fiver? Inflation has jacked that up to about 20 bucks these days but nonetheless, the concept is the same. ASIC’s website for ‘Money Smart’ has some great tips on how to manage pocket money with your kids. I’m not a parent, so probably the wrong person to ask. The government on the other hand, who gives pocket money to half the country, knows a thing or two.
Another great resource is the ATO website – but before you whinge and say, “how could she?” it has all the tax-related info in one place. It’s detailed, so probably best to start armed with a wine. Skim reading is not allowed, although I’m totally guilty of that.
What are you waiting for? You should have started yesterday!
Fearless Female Traders
(FFT note: The above blog is the opinion of the author only. Fearless Female Traders recommends conducting your own research and consulting a financial advisor before investing based on the information presented)