Five Reasons to Invest for Your Kids
Have you thought about investing for your kids to give them a financial head start when they’re older? We all want the best for our kids, so it pays to start saving now to help them in the future.
To make the most of compound interest
When it comes to investing for kids, time is the greatest friend you can have – that’s why it pays to start saving and investing early.
Harnessing the power of compound interest offers an incredible chance to grow wealth for your children over time. If you’re lucky enough to be able to invest $10,000 for a child at birth (assuming 8% net return per year), then on their 21st birthday they’d have about $50,300. That’s five times the initial investment.
If you’re able to add $50 a month to the same investment, assuming the same rate of return, it’s likely to turn into more than $90,000 (more than nine times the initial amount) when your child turns 21.
To help them with a home deposit
The average age of first home buyers in Australia has increased from 27 in the early 1990s to 31 in December 2017, according to figures from ING. In Sydney and Melbourne, first-time buyers are likely to be older again because property prices have risen even faster in these cities compared with wage growth.
As banks tighten lending conditions and seek larger deposits, many parents are putting money away to help their kids enter the property market when they’re older.
To assist with education costs (private school or uni)
For most Australian families, the cost of raising a child from birth to age 21 is estimated at more than $400,000 (including the cost of university education).
Universities Australia’s National Student Finances Survey 2017 found that one in seven domestic students say they regularly go without food or other necessities because they can’t afford them, while three in five domestic students say their finances are a source of worry.
Investing gradually over the years can help smooth these costs and build your child’s nest egg. Keeping costs low is an important part of this exercise.
To get better growth than a savings account
With interest rates at record lows, cash in the bank will not grow your savings – in real terms, it will barely keep up with inflation. While markets can be volatile, the likelihood of long-term growth is much greater than leaving your money under the mattress.
Many children’s savings accounts also have complicated terms and conditions that can make them less attractive than they initially seem. Look for a straightforward alternative that can grow with your child from birth through to adulthood.
To give them choices
When Amanda Derham was in her early 20s, a legacy from her grandmother changed her life and allowed her to buy her first car. Now Amanda is planning ahead to create similar legacies for her own grandchildren, setting up Six Park investment accounts for two-year-old Woody and his newborn sister, Piper. “The beauty is that their money will be growing. Money gives you choices, so I’m giving my grandkids a choice,” she says.
It makes sense to create a growing “nest egg” for your children’s future. Starting now could make a world of difference later. Open a new investment account on behalf of a child or grandchild with Six Park for six months of free investment management. Click here to learn more.