Investing for Grandchildren

Offering financial support to a grandchild can be one of the most rewarding parts of being a grandparent. This guide outlines investment opportunities you can use to invest in your grandchildren’s future.

Updated 5 November 2024

Disclaimer: Our investing for grandchildren guide is journalistic and nature and does not constitute financial advice. Any company, platform or service listed on this website is included as an example only. Never invest more than you can afford to lose. Investing for grandchildren is generally a long-term strategy and process, with regular contributions. If you’re unsure about anything, either seek financial advice, and/or don’t invest. An investment you don’t understand is (generally) not a good investment.

Our guide covers:

Know this: Compound interest is a wealth creator - the earlier you invest for your grandchildren, the more rewards they will reap from your efforts. In addition, understanding compound interest and how it works allows you to provide financial assistance to your grandchildren.

Why invest and provide financial assistance to grandchildren?

In most cases, parents receive an inheritance. Little to nothing trickles down to grandchildren.
People who live till their 80s and 90s often have grandchildren or grandchildren who are entering adulthood. This means investing early for them could help them buy their first home, establish a business, or clear student debt.
Having arrangements financially for grandchildren can often be a pleasant surprise but also helps to strengthen the grandparent-to-grandchild(ren) relationship.

Important: Understand that before you make any decisions to invest for your grandchildren, you should be financially secure and have sufficient funds for your retirement (either through KiwiSaver, your savings or other investments). Being financially secure means that all consumer debt (like credit cards) are paid off, and you have at least three months of income saved up for emergency use.

As we grow older, unexpected health matters may arise, which is why it is essential to protect yourself physically and financially, while also helping to pave the way for your children and grandchildren.

Investing for Grandchildren - how much to put in, why should I invest for my grandchildren, and how can I start?

While it may be tempting to support your grandchildren’s future, being overly generous may lead to problems.
How much money you decide to put in for your grandchildren is dependent mainly on your situation. It pays off to also do some long-term budgeting that considers potential illnesses and other unplanned expenditures. That way, you have a better understanding of what’s leftover for your family. This could be determined by how much you have or will have saved up for your retirement plans.
In most cases with inheritance, the beneficiary of assets is usually the parents to provide for each other. And only after the parents pass away will they provide for their children (i.e. your grandchildren).
Providing financial assistance to your grandchildren can come in two main forms: a lump sum or regular contributions. This guide outlines different ways you can invest for your grandchildren (often through regular contributions). The keys to successful investing are time and consistency. That means getting started early.
Know This: Even if you were to put in $10 a week, by the time your newborn grandchild turns 18 years of age, your contributions would have accumulated to $10,000.
Although it’s impossible to predict what your grandchild will spend in the future, here are some directions for where your investment could be contributed towards.

Investing for your grandchild’s education

There is no guarantee whether the current education systems we have today will exist in the next few decades, given how rapidly our society is changing and evolving. Such examples of innovation include Crimson Global Academy, the world’s first virtual high school and Synthesis School, an online enrichment program (inspired by Elon Musk). What can be certain about education, in general, is that personal development will play a crucial role for future generations, that of your grandchild.

Seeing that higher education takes up a huge portion of a family’s income, whether through tertiary institutions such as universities or online education, having investment funds set aside for your grandchild will help them significantly and prepare them for the future.

Investing for your grandchild’s first home deposit

New Zealand has expensive houses relative to an individual or household income levels. As house prices continue to increase, it may become increasingly harder for your grandchild to purchase a home in the future,

Having money set aside for your grandchildren, on top of contributions from parents (also known as the bank of mum and dad), KiwiSaver first-home withdrawal and HomeStart grant, homeownership will become much more affordable for your grandchildren. The larger the deposit, the lower the interest rate and repayment costs on their mortgage.

Investing for your grandchild’s retirement (using KiwiSaver)

Besides using KiwiSaver for your grandchild’s first home deposit, KiwiSaver is also known as New Zealand’s retirement savings scheme. Given that most grandchildren are under 18 years of age (legally a ‘minor’), that means that signing up for KiwiSaver requires a parent or legal guardian to act as a co-signatory. If your grandchild is under 16, the signatures of BOTH parents or ALL legal guardians will be required (Learn more with our KiwiSaver for Kids guide).

Know This:

After the account is open, you can make random or regular contributions of any amount to your grandchild’s account.
Having the knowledge and insight for what things to do and not to do for retiring, it is extremely valuable that grandparents, like yourself, can help construct a retirement plan for their grandchildren.
In addition, it can also provide you with a plan for how much contributions to make so that your grandchildren will be able to retire comfortably by the time they reach your age.

Investing for your grandchildren’s future assets, expenses and experiences

These come down to other expenses you foresee your grandchildren to have. As children enter their late teens and 20s, they go through major milestones and life-changing moments that can prove to be quite expensive financially. Going on overseas trips, exploring new experiences, getting married, purchasing a car - the list goes on.

In most cases, these are funded by the grandchild’s savings, supported parents’ contributions or through third party financial arrangements such as banks.

Although we’re not advocating that borrowing money is always bad, however, for most purchases, it pays to use savings to cover a portion of the costs instead of paying back the borrowed money plus the accrued interest.

Wills and Life Insurance Considerations

When it comes to transferring assets to your loved ones, careful deliberation is required, especially for your grandchildren. Here are some considerations you may need to look into:

1. Are your grandchildren minors?
In the case that more than one of your grandchildren are, you may want to leave your assets to a trust. Having a trustee, whether it be a financial institution or delegated adult close to you, allows you to manage and distribute the assets set out by you so your grandchildren can receive the benefits of those assets.

2. Should your distributions to your grandchildren be equal or based on needs?
If you have just one grandchild, then this is not an issue. But if you have more than one, this is perhaps one of the biggest decisions you will be making. Some grandparents decide to make equal distributions to minimise hurt feelings later down the line. However, if you have one grandchild that requires substantially greater financial assistance - for example, if he or she has physical deficits and requires in-home care - then you may want to consider leaving more money to that individual.

3. How much should I give, and on what terms?
If you’re looking to give a lump sum to your grandchildren, should the gift be a specific monetary amount? If so, how much? Unlike KiwiSaver, where your grandchildren can’t withdraw the funds unless for specific reasons, having a trust allows you to set your terms or provide guidelines for the trustees regarding its allocation and distribution. An example could be that trustees can authorise early release to grandchildren of part of the funds for specific purposes such as wedding, purchase of a property, travel, etc.

A letter of wishes (or memorandum of wishes) can also be used to document your wishes concerning the gift to your grandchildren and provide an indication as to how you may wish to see the funds being used by them.

4. How can I utilise my life insurance?
On the same lines as adding your grandchildren in your will, you can also assign them as your life insurance beneficiary, meaning that they can receive the payout from your insurance company in the event of your death during the covered time. In addition, many companies allow you to list multiple beneficiaries, which will help you provide financial support for your children and grandchildren, either by receiving even payouts or specific percentages that you allocate.

With these issues considered, it's appropriate to move onto investment options.

Top Investing Options for Grandchildren

As with any investment type, there are risks involved. However, the opportunity for these investments is to create long-term wealth and financial assistance for your grandchildren by starting early and capitalising on the power of compound interest.

The list below is ordered by asset class. Please note each asset class has specific risks, and the following information is not a recommendation or financial advice.

Low-fee and free investing options: Currently, there are three main investing platforms aimed specifically at kids. These are:

Hatch Kids Investment Accounts, which charge 50 cents per trade and a 0.50% FX fee. Hatch offers US-listed shares and ETFs.
InvestNow Children's Accounts, which have no fees. InvestNow offers managed funds and ETFs.
Sharesies Kids Accounts, which have no subscription fees. Transaction, management, and exchange fees still apply. Sharesies offers NZ and US-listed shares, ETFs and managed funds. Our dedicated Sharesies Kids Accounts Review covers everything.

Please note: Hatch actually doesn’t support grandparents opening kids accounts at this point. The issue preventing grandparents opening up an account is the need to establish a relationship between the custodian (i.e. grandparent) so that they can take responsibility for any tax. Until this is resolved, grandparents are still able to contribute funds but not open an account for the grandchild.

Bank Accounts, Savings Accounts and Term Deposits (with high-interest rates)

The most obvious and easiest option to set aside money for your grandchildren is to put them in the bank in the form of a savings account or term deposit. These require some research, given that fees and rates will differ from bank to bank. Setting up a savings account for your grandchildren provides you with more flexibility to make regular or irregular contributions. On the other hand, term deposits require you to invest a set amount of money over a fixed term to earn a higher rate of interest.
Pros: It’s easy to set up (normally, accounts in the child’s name are free of fees while they’re under 18 years of age) and provides you with the flexibility and certainty that interest rates will be paid. In general, it’s also the simplest to understand in terms of knowing the value of their investment, that being their closing balance.
Cons: The rate of interest for this type of investment is low compared to other forms. Depending on the amount of money put in, the average interest rates for banks can range from 0.1% p.a. to 1.5% p.a. As they say, “high risk, high reward”. In this case, having little risk on the investment also means that the reward for potential return isn’t as promising.
More details: Best bank accounts for kids, top savings accounts and term deposits.

KiwiSaver

KiwiSaver is New Zealand’s largest savings scheme, most specifically used for home purchases and retirement. If your grandchild is under 18, the only way for them to grow their KiwiSaver balance is for you to make voluntary contributions (random or regular), either directly to your KiwiSaver provider or through Inland Revenue.
Pros: KiwiSaver is free to join and offers long-term benefits for its members, including employer contributions (once the child is over 18 years of age), HomeStart Grant (which can offer up to $10,000 towards first-home purchase after contributing to a KiwiSaver scheme for a minimum of 3 years) and First-Home Withdrawals. KiwiSaver options aren’t fixed, which means that you and your grandchildren can switch providers free of charge, taking less than two minutes.
Cons: No employer or government contributions for your grandchildren below 18 years of age. Unlike other investment options, money in KiwiSaver is locked up and can’t be accessed unless for specific reasons such as first home withdrawal, hardship or retirement. Another drawback is that you’ll need to decide which KiwiSaver provider and fund type to choose and invest in.
More details: KiwiSaver for Kids and Our Favourite KiwiSaver Funds

Exchange-Traded Funds

Also known as ETFs, these are managed funds that are traded on the sharemarket. Our guide to ETFs has more details. ETFs can be bought directly using a broker or via investment platforms such as Sharesies and InvestNow.
Pros: ETFs can be a cost-effective way to have a diversified portfolio without paying high fees compared to actively managed funds. ETFs can be bought or sold like a share, offering extreme flexibility and liquidity (making it easy to enter and exit trading positions for withdrawing funds, if needed).
Cons: There are too many ETFs to choose from, making it difficult to decide which one/s will be more suitable for you and your grandchild. Also, some ETFs may be overly diversified, which may result in limited returns.
More details: Hatch review, Stake review, Smartshares review and Shares vs ETFs, as well as our dedicated Sharesies Kids Accounts Review.

Individual Shares

Traditionally, shares have been one of the most popular ways for people to build their investment portfolios. The difficulty with shares is deciding which company to choose from.
Pros: Huge diversity of companies and industries to choose from with little to no management fees once you own the shares. Depending on which company’s shares you own, they may also pay dividends to their investors. This allows you to withdraw or re-invest the profits if desired.
Cons: Being a successful investor in shares requires a fair bit of experience, reading and knowledge. Given that shares directly correlate to each company’s share price performance, it can be a risky option for many people due to the lack of diversification. Most platforms have a buy and sell fee per transaction, making it hard to make regular contributions unless you are using a low-cost platform such as Hatch or Sharesies.
More details: Hatch review, Stake review, Smartshares review and Shares vs ETFs. ASB Securities review and Direct Broking review.

Managed Funds

Managed funds, like KiwiSaver, is a fund where your money is pooled together with other investors. This fund is managed by experts who spread the money across different investment types like bonds and shares to get investors the best financial results.
Pros: Managed funds allow beginners to utilise the expertise of fund managers to receive investment gains. Similar to ETFs, managed funds offer a similar level of investment diversity to provide some level of safety for investors.
Cons: The most noticeable drawback about managed funds is the fund fees that may undercut the profits earned. The ultimate goal is to balance out fees with the potential return. Another drawback is that you have little to no control over where your money will be invested. The fund manager will make these investment decisions on your behalf.
More details: Managed Funds guide, InvestNow review and Simplicity Investment Funds.

Three Must-Know Facts and Considerations when it comes to Investing for Grandchildren

1. Look after yourself first

Be financially secure - that means all consumer debt is paid off.
Generosity to support your grandchildren should not come at the cost of depleting your retirement savings.
Make sure you have emergency funds in place in case of medical needs or unexpected expenditures.
Give only what you can give - even if it is just $5 a week.

2. Seek professional advice

Setting up trusts and wills properly requires legal expertise to guide you through what to consider and avoid.
Review your beneficiaries (i.e. children and grandchildren) and make sure your will is up-to-date
Take some time to consider your trustee - this may be based on cost, ability to make difficult decisions, trustworthiness etc.

3. Talk to your family

Talking about inheritance is a delicate matter but an important one. Don’t forget about it.
Every situation is different. You can do some one-on-one talks, among siblings or just parents. Whatever it may be, make sure everyone’s on the same page.
Address and discuss your investment decisions with your family - a huge part of communication is transparency.

Related Guides

Specific Accounts:

Further Resources - Workshops, Apps and School Activities
If you need further reading about investing and money management for children, we have shortlisted two options provided in primary schools around New Zealand. By including them in the list below, MoneyHub is not endorsing them in any way.

MoneyTime - MoneyTime is an online financial literacy program for children ages 10 to 14. The platform is free in 500+ schools, with paid use-at-home licences available. We suggest reading their dedicated guide for parents to learn more about this innovative platform.
Sorted in Schools – This government-led program is being rolled out to schools all over New Zealand - the website outlines what's on offer.