When KiwiSaver came with a $1,000 kickstart, everyone signed up the kids.
With the kickstart’s removal in 2015, there no longer seems a compelling reason for people under 18 years to join – until that age, there is no obligation for employers to match savings and Government will not pay the Member Tax Credit
So, should you sign the kids up for KiwiSaver even with no subsidies? For some families, the answer is “yes”.
KiwiSaver money is locked away until retirement. However, current rules allow the a member to access KiwiSaver funds to purchase a first home.
For children, KiwiSaver is in effect saving for their first home in perhaps 20 or 25 years.
Children will not be motivated by saving for a first home but parents, grandparents and other family members may be.
In fact, I think it is a good idea to sign the children up for KiwiSaver and then encourage wider family members to make regular contributions. These contributions could be small, say, $2 a week, but enlist enough family members and you may end up with wealthy children.
Five family members each contributing $2 per week would mean that in 20 years the child would have at least $20,000 in the KiwiSaver account – a good start towards a house deposit.
These contributions are easy to make – you can add funds to a KiwiSaver account whenever you want. Grandparents and other family members might be inveigled or somehow persuaded to make contributions both regular and for special occasions – e.g. birthdays and Christmas.
There may need to be a bit of gentle arm twisting – the idea of contributing probably needs to be sold to family members as saving for the children’s first a home. Today, that’s a reasonably easy sell.
There can also be a good education in this for the children. As they get older they can look more closely at their KiwiSaver account giving an opportunity for you to explain shares or fixed interest investments.
They will enjoy the delights of buoyant markets and suffer the damage of the down markets with an opportunity to teach economic cycles.
Giving money to children via KiwiSaver will not mean much to them when they are little – they cannot find instant gratification by taking the money off to Rebel Sports. But the KiwiSaver rules impose a discipline which has its own benefit – long term saving without withdrawal means long-term wealth.
So, sign the kids up and get some family buy-in as well. They may not thank you now, but in time they may recognise the best gift they ever had.
Martin Hawes is the Chair of the Summer KiwiSaver Investment Committee. He is an Authorised Financial Adviser and a disclosure statement is available on request and free of charge, or can be found at www.martinhawes.com.