Why Children Should Start Investing at a Young Age?
The meaning of investment is, “The time, effort, and money you put into a project, product, or service to make it better.”
Importance of Investment
People do a lot of investing in the world. The people who have been investing for a long time have made it easier for everyone else to be able to do the same. The main reason for this is that they have had a lot of practice and a lot of experience. The fact that the people who are in charge of investment have had a lot of experience, makes them the best for it.
One of the best investments that people can make is by investing in their children. Children are a person’s greatest investment. Not only are children given to us by God, but they are also the future. That means that if you invest in your children, you will be investing in the future of the world.
Teaching the importance of saving and investment to children is one of the things that parents can do in their child’s life to teach him or her about financial stability and planning.
It is also a great thing to introduce children to other adults who are saving money. There is nothing better than for a child to look at their parents as those who are actively managing their money and saving.
Financial goals
Teaching children how to set financial goals for themselves can be very helpful for them in the future. Setting goals will help children be focused on what they want in their lives and will help them know what they want and what they are willing to do to get there. Setting financial goals will help them achieve them more easily and will allow them to keep track of their progress and accomplish their goals.
Financial Planning
Financial planning is another thing that parents can do to teach their children about financial planning. There are several things that parents can teach their children to help them be more prepared for their future. First, they can teach them how to read a bank statement, in addition to helping them understand the importance of savings and retirement. They can teach them how to set a financial goal for themselves so that they know where they want to go and they can have a strategy for how to get there.
A very good and effective way to do this is by setting up investment accounts for kids. Setting up investment accounts for kids is something that every parent must do, regardless of the income level.
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Investment Accounts For Kids
Setting up an investment account for your kid means that you can slowly accumulate savings for them, which can later be used by your children for higher education or other purposes. It is ideal to set up an investment account for your kid, as soon as they are born. You can save AUD 100 per month and while this may not seem much, if you look at this figure over 18 years, it translates into AUD 21,600 without accounting for investment gains and profit.
If you hire a personal financial manager or simply invest smartly, you can at the bare minimum have around AUD 50,000 ready when your child turns 18. They can then continue to save and invest in their investment account and use it as they deem fit. In fact, your child can even use this as their early retirement account, becoming financially independent early and then focusing their life to follow their passions in life.
A kid’s account should be a tool to help them learn to be responsible for their money. They should learn to save for a future goal, be able to budget and learn to save and spend responsibly. But it’s not enough to just give them an account and hope for the best. As a parent, you will have to make active decisions on behalf of your children, at least till they turn 18. Personally speaking, they will still need help to understand how an investment works till they are around 22 years of age.
Parents can set up investment accounts for their children and use the benefit of a long time horizon, to let compounding do its work. In fact, an investment account is also a good way to teach how compounding works to your children.
There are many options for setting up investment accounts for children.
Junior Account
Parents can open a savings account for their children. Many banks in Australia offer savings accounts. Usually, these accounts have a very low or at times no minimum investment limit. The parents can supervise their children as co account holders. Some banks even offer annual bonuses if parents can contribute savings regularly to the junior account.
Junior accounts can be a very good and practical way to teach kids about how bank accounts work, how to check statements and keep track of savings each month. This can be a very good starting point for parents who do not want to complicate things.
On top of all this, the interest rate offered by banks will make sure that the compounding effect works its magic over time. However, the globally low-interest rates may dampen the potential.
Stock Portfolio
If you are more investment-oriented you can set up a custodian investment account to invest on behalf of your children till they turn 18. Apps like Stockspot and brokers like CommSec and NabTrade allow parents to open custodian accounts, on behalf of their children. When the child turns 18 the funds can be transferred on their title to make them the owner, till then they will act as the beneficial owners.
Using a stock investment account is also another good way to introduce your children to the power of investment to create wealth over the long term. If your child grows up knowing that they have stocks, seeing you manage their portfolio. By the time they are 18, they are going to know more about stock investment than a lot of adults out there.
ETFs
Just like parents can set up a portfolio of stocks for their children, acting as the trustee. They can also set up a portfolio of ETFs. ETFs will add more diversity and bring a better rate of return to the portfolio. Managing an ETF portfolio will be similar to managing the stock portfolio.
In fact, it is advised to mix and match between stocks and ETF investments, to keep the portfolio diverse.
Crypto Currency
You will not find a lot of financial advisors telling parents to invest in crypto for their children. So take this with a pinch. The Crypto investment market is very volatile, it offers a high reward but for high risk. Furthermore, investing in crypto is not like investing in stocks. You need to know a bit more about the currency than you would about the stock of your favourite company.
If you can carry out fundamental and technical analysis and actively manage the portfolio for your child, then you can invest on behalf of your child in your name into cryptocurrencies. If luck favours you, you can end up making windfall profits for yourself and your child. The earnings can then be easily transferred into the junior account.
Bottom Line
There are literally a lot of investment options for kids. We have only covered the few most common ones. You can also invest in precious metals or buy long term bonds. If you are not sure what to do you can consult a financial advisor for setting up a long term investment strategy for your child. Whatever you want to do, make sure you set up the investment account for your child as soon as possible, to take advantage of the long time horizon and compounding effect.
Australia Unwrapped provides only general and not personalized financial advice and in no way has taken your circumstances into account. Investments go up and down; any questions, talk to a financial advisor. This blog is opinion only, and in no way should investment decisions be based on this information.
Australia Unwrapped does not endorse or vouch for the accuracy or authenticity of postings, comments or the article.
Main Image Source: Pixabay
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