Before we get into the content, we acknowledge that families come in all shapes and sizes. Not everyone can or wants to have kids, and some may have experienced tragedy. This article discusses investing for kids, so feel free to close this window if you don't want to consider this topic.
If you’ve read the above disclaimer and you’re still here, it’s likely you’re thinking of investing for your kid(s). Perhaps you’re considering the options available to you, or even if it’s a possible venture. Whether you choose to invest for your children or not, it’s your journey. You know what’s best for you and your family. Not everyone invests for their children – and that’s okay. We recognise that investing for our kids is a privilege that not everyone has access to.
Parenthood comes with a wave of learning curves. Not only do you need to look out for yourself, but you’re now also responsible for another human being! And when it comes to planning for your child’s future, finances play a leading role. From budgeting for necessities to saving for their education and building up a nest egg – it looks different for each family.
If you’ve decided to go down the route of investing for your kids, you’re in the right place. In this article, we’ll cover how to start investing for your kids and investment considerations. Plus, we'll introduce you to Pearler Headstart as a possible solution.
Reasons people invest for their kids
Maybe you already have an investment portfolio, and you’re ready to do the same for your child. Or maybe you’re completely new to the investing journey and want to do it on behalf of your child first. Whatever the situation, there could be several reasons you feel prompted to invest for your kid:
- To teach them good money and investing habits
- To build an emergency fund for unexpected expenses
- To save up for education expenses
- To contribute to their first car
- To give them a financially comfortable future
- To help them achieve financial independence and retire early ( FIRE )
Do any of these reasons resonate with you? Before you invest for your kid, get a firm grasp on your reason, as this will help you choose an appropriate investing strategy.
How to invest for your kids
There are a few different ways you can invest for your child, each with its pros and cons:
- Junior savings account – an easy, simple way to help your child dip their toe into the money management pool, however with very low returns (especially in the current low rate climate).
- Exchange-traded funds (ETFs) – this gives you access to a more diversified portfolio of assets (e.g. cash, shares, bonds, listed property) to passively invest.
- Directly held shares – it takes more time and effort to invest in the share market. Direct share investing requires researching specific companies to invest in and regularly monitoring and management.
- Investment bonds – for parents who want to invest for the long term and don’t plan on touching the funds for at least 10 years.
- Super – a longer term investment with tax concessions and very limited conditions for the withdrawal of funds.
These approaches have various minimum investment requirements, risks, fees (pay close attention to this one!), rules around making contributions or withdrawals, investment returns and tax impacts. It’s important to weigh up the different factors to make informed investment decisions.
Pearler’s solution to investing for your kids
There’s no right way to invest for your kids as each family’s situation and goals are unique. However, we do have a simple way to invest for your child. A solution that’ll give them a financial head start and take the headache out of managing multiple investment portfolios.
Enter: Pearler Headstart .
Pearler Headstart empowers you to create a strong financial future for your child by growing their nest egg. It uses the same managed fund as Pearler Micro , but in an app designed for parents to invest for their kids. With Pearler Headstart, you can grow your child’s wealth by choosing between a range of low fee managed funds. It costs $0 to open an account, and balances under $100 are fee-free. Plus, you can deposit as regularly as you’d like or set and forget using the Automate feature.
How to invest with Pearler Headstart
We’ve designed the Pearler Headstart app to make investing for your kids simple. To start investing using Pearler Headstart follow these key steps:
- Download the app on Google Play or the App Store .
- If you already have a Pearler login, you can use this to log in on Headstart and create separate kids accounts. If not, start by creating your Pearler account with your email address.
- Keep your and your child’s IDs on hand (birth certificate, passport, driver’s license) for identification purposes.
- Enter the name of the child(ren) you’ll be investing for.
- You’ll then reach a step where you select how you’d like to invest : (a) invest on behalf of your child or (b) invest with your child in mind. Once you make this choice you can’t change it, but you can create a new account and start again.
- Then select your investing goals (e.g. building wealth, first car, gap year).
- Now comes the fun part – you get to choose what you want to invest in for your child. There are 10 options for you to choose from.
- Next, complete some tax related information (such as your tax file number).
- Provide your child’s personal details (i.e. full name and date of birth)
- Upload your child’s birth certificate or passport.
- Once your documents are verified, your Headstart kids account is created.
- To start investing, click on the Invest now button and you’ll receive a unique BSB/ACN which you can use to set up a recurring deposit (if you wish to autoinvest).
The entire setup process should only take a few minutes.
Tax impacts of investing for your kids
As mentioned, when investing for your child you can choose to invest in your name or your child’s name. Both options are also available with Pearler Headstart and come with different tax implications. Note that the marginal tax rates that apply to adults are not the same for children.
If investing in your child’s name, be aware that minors (children under 18) can be taxed at higher rates than adults . Some investment products can be more tax-effective when held in the adult’s name or the child’s name (depending on the circumstances). Tax consequences may apply if you sell or transfer investments to your child at a later date.
The rules applying to children under age 18 are not straightforward. We recommend you get professional tax and/or financial advice before opening a Headstart account. Pearler is not a registered tax agent and cannot provide any advice on tax.
For more information on the tax impacts of investing for kids, head to the ATO website or check out this article by our friend Ben Nash from Pivot Wealth.
Investing with your kids
When you invest for your kids, you also get to invest with them.
At Pearler, we believe that investing for our children’s future isn’t just about building a portfolio. It’s also about financial education and involving them in conversations about money. That’s why Pearler Headstart enables you to set financial goals for your kids and share the journey with them.
Whether you’re saving for their first car, a gap year, or a buffer for life’s surprises, you can set and track your goal in Headstart. And by sharing your progress with your children, you can nurture their financial literacy at the same time. They might even agree to you redirecting their pocket money from their pockets to their Headstart portfolio! Or, if they take on a part-time job during high school, they can even start making contributions themselves.
Ready to invest in your child’s future? Start today with Pearler Headstart (or shop around if you’re still unsure).
Happy investing!
