Investing in our kids

When it comes to setting your children up for the future, it’s far from child’s play. Here are the golden rules for long-term financial success.

The pandemic has left many Australians rattled about their financial wellbeing, and parents are especially concerned about meeting the costs of raising a family. The good news is that you can give your kids a great education and healthy money skills, and it doesn’t have to cost a fortune. Start by looking at these simple steps.

Investing for kids’ education

Just as shares and other listed investments like exchange traded funds (ETFs) can be a fun investment for teens, they can also be a handy way for parents to invest for their kids’ education. In today’s lowinterest-rate world, tucking money away in a savings account just won’t generate the returns needed to

make a real contribution to school costs. It pays to look at ‘growth’ assets like shares and ETFs with the potential for high, tax-friendly returns and longterm capital gains. The earlier you start investing, the better. It lets you harness the power of compounding returns, which over time do more of the heavy lifting with helping to pay school bills.

A stress-free alternative

A simple option for time-poor parents is investing through a robo adviser such as Stockspot or InvestSMART. You start by filling out an online questionnaire that assesses your goals and how you feel about risk. From there, your money is spread across a ready-made portfolio best suited to your needs. The portfolio usually comprises a basket of ETFs. The beauty of this approach is you can gain a lot more diversity than if you invest directly. However, you’ll pay annual fees on the ETFs, as well as the robo adviser’s own fees, so it’s worth shopping around. Both Stockspot and InvestSMART have options for children to invest where an adult acts as trustee.

Watch out for tax issues

One pitfall to avoid is the high tax rates that can apply to under-18s. Kids can only earn up to $416 annually on ‘unearned’ investment income before tax rates of up to 66 per cent apply. At that rate, your child would need to have over $41,000 in a savings account before tax applies. However, it does highlight the risk of putting school-focused investments in a child’s name. Another option is for parents to hold investments in their own name or act as trustee for their child. Your tax adviser can find the best option for your situation.

“A visit to the bank helps kids feel in charge of their money.”

– Effie Zahos