Investing for children delivers them a world of opportunity

Parents and grandparents can make a huge difference to a child’s future balance sheet, and also their financial brain. Here’s how.

Eighteen years. That’s an impressive investment time frame for people looking to build long-term wealth.

It’s also the number of years parents have to give their children a great financial headstart to adult life, courtesy of some clever investing.

From savings accounts and share portfolios to investment bonds and exchange traded funds, investing for children can vary dramatically and money specialists say it can unlock a new world of financial knowledge.

It doesn’t have to be from birth – parents and grandparents can make a difference from any age, thanks to the power of compound interest, but the general rule is to begin as soon as possible.

“Start small and contribute to it regularly,” says Tribeca Financial chief executive officer Ryan Watson.

He says it’s a good idea to bring children on the investment journey, because many today have a very different relationship with money as tap-and-go transactions replace traditional cash.

“So the big risk I see is the kids of today really understanding the value of money, largely because they will never really hold it in their hand,” Watson says.

NO SECRETS

Some parents invest secretly for their children ahead of a surprise 18th birthday gift, but Watson says it’s best to talk with them and share the experience.

“We need to start normalising talking about money in the family household, removing the stigma around money and educating the next generation on how to have a positive relationship with money,” he says.

Rhodie and Alex Bedwani invest for their daughter Audrey, 2. Picture: Justin Lloyd.

Parents should research several investment options and platforms, and understand potential tax issues. A minor’s investment income above $416 a year is taxed at up to 66 per cent, so larger amounts can potentially be put in a parent’s name and transferred to the child later.

“Find a tax-effective investment vehicle, such as an investment bond,” Watson says. “This will provide potential tax relief once invested over a 10-year period.”

Exchange traded funds are popular, can be traded on the share market and they spread every dollar invested over a variety of stocks in an index such as the ASX 200 or the S&P 500 in the US. There are also platforms that allow direct investment in overseas stocks, so a child can become a part-owner of Apple, Netflix or companies familiar to them.

Itrust Invest founder Lawrence Stapleton says children should be exposed to the investing process as much as possible.

MOST VALUABLE ASSET

“This could mean sitting them down and taking them through your investment portfolio or showing them how you have set up auto recurring contributions and the reasons for doing so,” he says.

“Time is the greatest asset your child has right now, so the sooner you start investing for them the better, even if it is only a small amount.”

Stapleton says children have short attention spans and investing can be complex, so check out financial educators on platforms such as YouTube and Tik-Tok.

Itrust Invest founder Lawrence Stapleton says time is a child’s greatest investment asset.

He says invest based on age: “a young person has a long-term investment horizon and therefore can direct their investments towards higher-growth, riskier assets such as stocks”.

Alex Bedwani and wife Rhodie started investing for their daughter Audrey, 2, about six months ago.

“We had a regular bank account to deposit money into, but we were mindful of the next-to-nothing money being earned in interest, and with inflation it was going backwards, he says.

They opened an Itrust account with a higher-risk, higher-growth global equities fund “because we are playing the long game here”.

The investment is set to cover Audrey’s school fees a decade from now. “The earlier you start, the better, and ride the waves of the ups and downs of the market,” Bedwani says.

TIPS FOR PARENTS

• Start investing early and contribute often.

• Talk to your children about money – how it is earned, controlled and respected.

• Consider tax when investing, and seek advice if unsure.

• Make it fun – there are many free investment education tools and experts online.

• Strict rules and low interest rates paid on children’s bank accounts mean the money may go backwards after inflation, so consider higher-growth investment options.

Source: Tribeca Financial, Itrust invest

Originally published as Investing for children delivers them a world of opportunity