Investing for Kids

With a 0% interest student loan scheme and free first-year fees, education is more affordable than it has been in the last twenty years. However, the situation today is no guarantee of the future, and successive governments may increase fees, change loan schemes or do both. We estimate the average tertiary study and living costs total around $40,000 for a three-year course if your child lives away from home. It’s a lot of money that can be funded through an existing investment and/or using the student loan scheme.

Our view: We believe the student loan system, in addition to a part-time job, is sufficient to finance tertiary study for most students. A student loan and/or allowance probably won’t be enough to finance living costs (unless your child lives at home), so having a cash buffer will avoid the reliance on interest-free overdrafts.

In almost every corner of New Zealand, homes are expensive (relative to average income levels). A $900,000 home for two people in their late 20s earning a household income of $120,000 is still prohibitively expensive. Growing an investment to finance a home deposit will be of enormous benefit to any child when the time comes. The larger the deposit, the lower the interest rate (because the loan is less risky) and the lower the ongoing interest and repayment costs.

Our view: Parents are increasingly helping their children, known as the ‘bank of mum and dad’. Rather than risking your home as security, a one-off cash contribution for a deposit is low-risk and has long-term benefits. Coupled with the KiwiSaver first-home withdrawal and HomeStart grant, as well as your child’s savings, homeownership can be much more affordable. While MoneyHub isn’t obsessed about home ownership (as some other financial resources are), the right homes continue to be a long-term investment for life.

MoneyHub user Josh says:
“My wife and I gave both of our children $50,000 in cash each. My son bought a house for around $600,000 in Wellington, meaning this helped a lot with his deposit. He financed the repayments by getting two flatmates. I think without our money he would have had to settle for a home that wasn’t as attractive to renters, and this would have affected his repayments”.

With KiwiSaver available for under 18s (and many schemes offering free-fees), growing their retirement fund with voluntary contributions is very easy. Our KiwiSaver for Kids guide explains everything significant to consider about signing up. The benefits include that after the age of 18, all employers must contribute to their fund, further accelerating their retirement nest egg.

Our view: We don’t believe New Zealanders are saving enough via KiwiSaver, so the earlier a child starts, the higher the chance they’ll enjoy a healthier retirement. Best of all, the only way they can access their KiwiSaver balance is when they retire, for a home deposit or in extreme financial hardship.

Potentially suitable or relevant investment product(s): KiwiSaver is the most popular retirement scheme in New Zealand, and our favourite KiwiSaver funds can help you focus on what your child’s investing strategy is.

Children go through a lot of important (and expensive) events, milestones and experiences in their late teens and 20s. This can range from the purchase of a car to saving for a post-university trip to helping out with setting up a flat. Whenever they need a big-ticket item, having an investment fund to draw from will help cover a portion of the costs. It avoids the need to borrow or arrange financing, cementing the view that saving is better than borrowing for most purchases.