“You can make it a bit of a game with the children.” See how much money from parents and grandparents they can save in their KiwiSaver. By the time they reach 18 they’ve seen how money invested grows into a really decent amount, said Coverdale. “It helps with financial literacy and by starting them young you’re setting good habits.”
Not all parents can find the money. But even $5 or $10 a week from birth will turn into a sizable sum by their mid-20s. That $5 a week alone from birth in a growth fund and after tax will be worth around $35,000 by age 25, according to Calculate.co.nz.
Most children with KiwiSaver can also be encouraged to invest some of their Christmas and birthday money and income from part-time work. My children had it drummed into them to save 10% of everything they earned. This amounts to small sums. Such as $1 of every $10 earned for a paper round. It’s small amounts of money.
Often when young people see their balances growing they start putting their own money in, and get employer and government contributions when they turn 18.
For some, the chunk of savings they’ve built up slowly through childhood can be the difference between buying a home in their mid to late 20s, and remaining on the rental hamster wheel.
There are, of course, other things to save for in early adulthood such as university and an OE. But a little locked away regularly in KiwiSaver will be a godsend when it comes time to buy a house, as it was for Coverdale. Saving into KiwiSaver takes away the temptation to use that money for something else, she added.
“[Other savings] have their place too. But KiwiSaver really sets up young kids for getting on the property ladder, which is an issue that the youth of today face a lot.”
Coverdale has a number of clients who engaged their children with KiwiSaver early and taught them the power of investing. “The most recent example is a brother and sister whose dad set them up early on in KiwiSaver. Now [the brother and sister] are buying a house together.” They’re able to do this while still at university in the South Island because they have part-time jobs, will get a flatmate in, and their father is guaranteeing the mortgage. “They have about $120,000 in KiwiSaver between them,” she said.
Over the years the siblings’ grandparents had contributed holiday and birthday money, and the pair also worked part time from the age of 14.
Teach them about how KiwiSaver works. When Coverdale first joined KiwiSaver at age 17 she was automatically enrolled into a slow-growing default conservative fund. The lesson that she wishes she could tell her teenage self, is to do some research and choose a higher growth fund.
A final point from Coverdale is that as well as the financial education from KiwiSaver, the fees are typically lower for children. “In KiwiSaver membership fees and manager’s fees are lower, or sometimes non-existent.” This will be reflected in better growth.
