For many New Zealanders, KiwiSaver is an everyday part of their finances. Deductions come out of salaries and are transferred into Kiwisaver schemes. But what if you don’t earn an income and, instead, you spend your days at school – does KiwiSaver matter, then? If you’re five, the concept of retirement is as remote as your 65th birthday. Likewise, what five-year-old is concerned with getting on the property ladder? But that doesn’t mean KiwiSaver for children is laughable. In fact, parents could be doing their children’s future finances a massive favour by enrolling them in KiwiSaver. Below, we’ve listed some points to factor in when considering KiwiSaver for children.
Six key reasons to get KiwiSaver for children
- KiwiSaver is free for parents to set up
Enrolling your child (or yourself) in a KiwiSaver scheme doesn’t cost anything. Of course, if your child is young, they won’t have a salary to make deductions from, so you’ll have to make contributions on their behalf if you want to build up their savings. But the earlier you sign them up, the more potential they’ll have to grow their savings for retirement or a first home.
- It can set up kids for a KiwiSaver HomeStart grant or KiwiSaver first home withdrawal
It’s no secret that buying a first home in New Zealand is challenging. However, there are some options to help support putting a deposit together. One is the KiwiSaver HomeStart Grant. If you’ve contributed to KiwiSaver for at least three years, you may be entitled to a first home government subsidy. The amount depends on how long you’ve been contributing to KiwiSaver. After five years of contributions first home buyers are entitled to the maximum amount: a subsidy of $5,000 for individuals and up to $10,000 for couples to put towards the purchase of an older/existing home. If the subsidy is used for a brand new home, the amount increases to a maximum of $10,000 for individuals and $20,000 for couples. To qualify for a HomeStart grant, you can’t earn more than $85,000 a year for one person, or $130,000 for two or more people buying a home together. KiwiSaver members are also entitled to withdraw their savings towards a first home deposit, provided they’ve been a member for at least three years and leave a minimum of $1000 in the account.
- KiwiSaver for children teaches good habits
In our guide How to Teach Kids That Saving Can Be Fun, we talk about tips and tricks to help encourage children to save. KiwiSaver is an extension of forming these good money habits. Children won’t see immediate rewards from putting money into their account, but any money they put aside now will pay off for them later in life.
- Parents can lead by example
Parents can talk endlessly about being sensible with money. But it’s a whole lot more effective to lead by example. Setting up KiwiSaver for children is a great opportunity to start some family discussions about money. Children like to be included as one of the grown-ups. If they have a KiwiSaver account just like mum and dad, this should add some appeal for them to get involved.
- Your choice of KiwiSaver scheme and fund for your child is not set in stone
Just because you choose your child’s initial KiwiSaver scheme and fund doesn’t mean they have to stay with that investment type for life. As they get older and start to learn more about investing, they’ll have the option to switch KiwiSaver provider or fund. And it’s never too late to switch if you don’t believe your KiwiSaver is working for you. Regularly reviewing your financial products to check they’re still working for you is a good habit to get into. Weigh up fees, returns and features to help choose a KiwiSaver account. To help you out with your decision, whether it’s for yourself or your children, Canstar compares providers and funds. To compare your options, use Canstar’s free KiwiSaver comparison tools, below.
6. KiwiSaver is a good chance to let compound interest work its magic
In our guide The Magic of Compound Interest, we talk about how compound interest can be a real savings booster. In simple terms, compound interest is earning interest on top of interest. This savings wonder also works with KiwiSaver. Your investment fund may fluctuate over time, but, regardless, your investment will still grow on top of the amount you’ve made through your investment, ie, not just growing on the amount you initially put into KiwiSaver. The earlier you sign up your children to KiwiSaver, the more time there will be to earn interest (on top of interest).
What to be aware of with KiwiSaver for children
We’ve talked about the benefits of KiwiSaver for children and that will hopefully help to show why it’s such a powerful savings tool, regardless of age. But there are still some things to be aware of with KiwiSaver for children. Here are the key rules and regulations around enrolling children in a KiwiSaver scheme:
- If a person is under 18 when they join KiwiSaver, they are considered a minor. How that impacts on the sign-up process depends on their age. If the KiwiSaver applicant is 16 or 17, then the applicant and one of the applicant’s legal guardians must sign the application. If they are under 16, then all of the applicant’s legal guardians must sign on their behalf.
- If the child is under 18 and in paid employment, they can’t join KiwiSaver through their employer. They can only join by contacting a KiwiSaver provider directly.
- If the child is under 18 and is not employed, they’re not required to make contributions, but they (or a parent on their behalf) can choose to make voluntary KiwiSaver payments. Note that some KiwiSaver providers require all members to make a minimum contribution, regardless of age.
- If a KiwiSaver member is under 18, unfortunately, they’ll not receive the KiwiSaver government contribution of up to $521 per year, even if they’re in paid employment. Employers are also not required to contribute to KiwiSaver accounts of employees who are under the age of 18.
- There’s no such thing as child-rate fees for KiwiSaver. KiwiSaver members under 18 have to pay the same fees as everybody else.
If you’ve decided enrolling your child into KiwiSaver is the way to go and/or you want to review your own KiwiSaver investment, make sure you do your homework. Having a good look at what is happening in the market will help you pick a KiwiSaver scheme and fund type that works for you. To compare your options, use Canstar’s free comparison tool, below.