KiwiSaver: How $5 could turn into $5000 for your kids

By Susan Edmunds of RNZ

If you want to get your kids off to a good start financially, even small regular contributions to KiwiSaver could make a big difference, the country’s largest provider says.

ANZ Investments managing director Fiona MacKenzie said a 5-year-old whose family contributed $5 a week in an aggressive KiwiSaver fund could have the equivalent of $5000 in today’s dollars saved by the time the child reached 18.

If they then worked for the minimum wage until they were 34, they could have saved $105,000. Thirty-four is the average age that ANZ members make a first-home withdrawal from KiwiSaver.

“It’s really important to try to continue contributing after making a first-home withdrawal. If a 34-year-old first-home buyer on the average wage continues contributing 3% to a growth fund they could have over $230,000 more by age 65. If they can increase the contribution rate their savings will be even larger.”

MacKenzie said many people underestimated the impact that KiwiSaver could have for children.

“The classic investment science is that the biggest competitive advantage any investor has is a long investment horizon. The more we can help kids get in early, the better they can get the benefit of the market doing the heavy lifting.”

She said it could also help from a financial literacy perspective, if parents used KiwiSaver as a tool to explain concepts to their kids.

“I signed my twins who are now 16 up to it when they were 4 and it has been incredibly powerful, from a young age, in being able to start talking to them about basic financial concepts, what’s a share, what’s a dividend, the power of compounding. I think we do underestimate it.”

She said parents could start talking about investing early and add complexity and detail as kids grew older.

“You get monthly statements and it’s an excuse to sit down and say ‘this is how much your KiwiSaver made in the last year’.”

She said she was concerned at the prospect of an increasing divergence in the future between young people whose parents had been able to set up investments for them when they were young and those who had not.

“As our population ages, KiwiSaver will play an increasingly important role in our future prosperity. Getting started early – allowing more time for savings to compound – can make a big difference.

“Given this we need to ask ourselves; are we doing enough to incentivise our young investors?”

She said she would like the Government to consider introducing a matching contribution for KiwiSaver members under-18. At the moment, employers do not have to pay a contribution for that age group.

MacKenzie said it was a good time to start a conversation.

“It may not be something New Zealand can move towards now but if we get alignment and debate about what New Zealand can do differently – in 20, 30, 40 years from now we will look back and rue if we don’t start thinking about our young Kiwis. The benefit of time, as we’re seeing with KiwiSaver, is incredibly powerful.”