Until 2015, enrolling your kids in KiwiSaver was a no brainer: you got a free $1,000 kickstart for each child.
Now though, that kickstart is gone, and under-18s are not eligible for the $521 government credit.
Without these clear-cut financial incentives to join, should you enroll your child in KiwiSaver?
Yes, says Michael Cave, AFA and director of Cave Financial; “the philosophy of getting kids saving and investing from a young age is fantastic.”
Despite the removal of the kickstarter, there are still considerable benefits to being in the scheme: kids can watch their balance grow, have savings locked in for a first home, may be able to pay low or no fees, and they can learn some of the basics of financial literacy.
Cave’s four children are all enrolled in KiwiSaver and he believes it’s been a good introduction to the power of investing. When they get a statement that shows their balance they enjoy watching it grow over time.
It’s also possible for them to look at their KiwiSaver portfolio and recognise the names of companies they know, like Toyota and Google.
“They only have a little bit going in each month, but with compounding interest it really begins to add up,” says Cave.
“They can start to understand the ups and downs of markets and over time it also shows them the benefits of delayed gratification. I think that’s a useful principle for your whole life.”
You can certainly get similar benefits from enrolling in a different scheme, and any saving you can do for your child is a great idea.
KiwiSaver has two specific advantages over other funds: the first is that some providers don’t charge fees for children; the second is that savings can’t be taken out easily.
Obviously, that has its drawbacks, but Cave says locked-in savings can be a big advantage, preventing your children from withdrawing their money for travel or toys.
“They should save separately for a car or an OE,” says Cave.
“When young people wake up and find they have $10,000 in an investment it’s very tempting to spend it. But they will appreciate having money locked away for a house.”
While it’s ideal to be regularly contributing to an investment fund for your kids, Cave does warn against undercutting your own financial success.
“Don’t go super crazy. Put in a small amount but make sure you’re putting most of your surplus money towards your own investments and paying back your mortgage.”