The Happy Saver: Why invest for kids?
Ruth, the Central Otago-based personal finance writer behind The Happy Saver, shares her experience teaching her daughter about investing, and why it’s important to invest for kids.
I’m a huge believer that adults (if they have the means to do so) should start investing for the kids in their lives as early as possible. After all, kids have time on their side—more time to let compounding do its work, and more time to make investing a habit.
I often hear “Why did no one tell me about investing when I was growing up?” We each do our best to equip our tamariki with the skills to lead extraordinary lives; let’s make sure that financial education is one of those skills, and teach our kids the things we missed out on.
Teaching my daughter about investing
Creating an investing habit from a young age can help grow a nest egg for kids to leave the nest with. Because we don’t want our kids to crack that egg open and scramble the lot of it, we need to educate them about money as we go.
I’ve used Sharesies as a teaching tool for my 14-year-old daughter for almost four years. Every week, I guide her to direct half of her pocket money (and any money from odd jobs) into her investment portfolio. While she doesn’t completely understand what investing’s all about, she’s starting to see the merits of it—and she’s increasingly taking control of the process!
When I sit down to invest with my daughter each week, we both get to see the money she’s put in, how many shares she’s been able to buy, and her total return over and above her deposits. I encourage her with quick explanations; for example, talking about how the share market fluctuates. Her knowledge is slowly building up over time.
She shared with me what she’s learnt so far:
The power of compound returns.
The value in investing small amounts regularly over a long period of time.
She can invest and still have enough spending money in her bank account.
She knows she’ll appreciate my efforts and education later in life.
Investing can give kids more choices
It’s a rare child who willingly brushes their teeth, but as they become adults, they'll appreciate that they were encouraged to—it’s the same with investing.
My daughter knows that in the future, she may be able to use the money she’s invested to buy a house or car, travel, go to university, or start a business. It’s giving her more choices in life. And by starting to invest now, she’ll never have the regret that many adults have of wishing she’d started earlier.
Anyone can invest for the kids in their lives
Any adult who has the best interests of a child in their heart can invest for them—you don’t need to be a parent or guardian. I’ve heard from many extended family members and friends who use investing as a way to connect with the kids in their lives:
A grandma who looks forward to a weekly catch up with her grandchild so they can sit down and have fun choosing what to invest in.
A doting uncle who might not be around for the 3 AM nappy change but can happily set aside a monthly amount to build up for a university fund!
Godparents who relish the opportunity to invest and share wisdom with their godchildren.
Investing for someone else is a practical way to share financial wisdom, and the child can see the results of that shared wisdom in a growing investment portfolio.
Go on the journey together
I’m a firm believer in sharing with your kids that you’re investing for them, how much you’re investing, and that they can invest their own money too.
Think of it this way. What would you do if $50,000 was unexpectedly deposited in your bank account in your late teens or early 20s? If you haven’t been part of building up that $50,000, you might not appreciate the sacrifice and effort that went into it.
However, if you’d watched and taken part in growing that money over the last 18 years, I wager you would treat it with a lot more respect. If your child has a role in developing their wealth, I think they may be more likely to make great choices when they have full ownership of it.
A lot of money passes through our hands during a lifetime. As a person who’s made a few financial mistakes of my own, it would feel remiss of me as an adult in a young person's life not to try and help them avoid the same mistakes. In our home, we regularly talk about money, life costs, incomes, and investing. No money topic is off-limits. I’m educating my child to become a long-term investor, and once she leaves home, she can take the habit of investing with her.
I believe that investing early will help give kids more options to live their best life. Imagine the freedom our kids could have to chase their biggest and brightest dreams and not have a lack of money holding them back?
Check out Part 2 of our series with The Happy Saver, where Ruth details how to get our tamariki engaged with investing.
Ok, now for the legal bit
Investing involves risk. You aren’t guaranteed to make money, and you might lose the money you start with. We don’t provide personalised advice or recommendations. Any information we provide is general only and current at the time written. You should consider seeking independent legal, financial, taxation or other advice when considering whether an investment is appropriate for your objectives, financial situation or needs.