As both a parent and a financial adviser, I often get asked what's better for kids: KiwiSaver or managed funds? This is a very personal question and really depends on what you want for your children.

Personally, I prefer diversity, so I've chosen to do both. Let's explore why.

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KiwiSaver

We all know how KiwiSaver works. You open an account, start contributing, and if you're over 18 and working, you'll contribute a minimum of 3%, with your employer matching that. Plus, if you meet the minimum contributions of $1,042.86, the government adds $521.43 to your account. Depending on where your money is invested, your fund starts growing nicely.

But for kids, none of that happens until they turn 18 and start working. So, what are the benefits of opening an account and contributing early?

KiwiSaver is a great option if parents want to start saving for their child's first home deposit.

I'm all for this idea because the money is safe and can't be used for anything else. For accounts under $500, Booster doesn't charge any fees, which is usually $3 per month. This is very beneficial for accounts with low balances.

How much should you contribute to your kid's KiwiSaver? It depends on how much you want their balance to be when they turn 18 or older. Remember, these funds will be locked. For long-term goals like this, usually 15+ years, growth funds are recommended. However, you'll need personalized advice to confirm this is the best option for your specific situation.

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Managed Funds

Managed funds have the big advantage of accessibility. You can access the money if you absolutely need it. However, if this is to fund your kid's long-term goals like their OE, education, wedding, or any other big goals, you'd usually allocate the funds in a growth fund. It may not be ideal to withdraw any funds earlier than 15+ years either.

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With a managed fund you can access the money anytime

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Pros and Cons

The pros of getting kids into investing are almost the same between KiwiSaver and Managed Funds (KiwiSaver is effectively a managed fund) with the key difference being the accessibility of the funds. For KiwiSaver, for example, funds cannot be withdrawn until your child is 65, unless it is for your child’s first home deposit. This is a sound strategy if you want to make sure your child is on track for their first home or a financially healthy retirement. With managed funds, you have many of the benefits of KiwiSaver (except government contributions), but you can access the funds sooner for braces, OE, education, etc. With the potentially shorter time frame of a managed fund, you will need advice on the correct fund type for your goals to make sure your investment is the most fruitful in the time frame you need it.

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I strongly suggest getting professional advice on the correct fund type for your goals to make sure your investment is the most fruitful in the time frame you need it!

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Conclusions

For both options, the earlier you start, the better to maximize the benefits of compound interest. You also need to consider your family's financial goals, timeframes, and risk tolerance when choosing the best investment option for your kids. Involving a financial adviser early on ensures you understand how everything works and have their ongoing support if changes are needed in the future.

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The earlier you start, the better to maximize the benefits of compound interest.

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Feel free to get in touch with me if you want a one-on-one chat about options for your own family.

Giovana

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About Giovana

Hola, I’m Giovana, and I am a Client Services Manager but also a Financial Adviser here at Velocity. I have 12 years of experience in the industry and one of my passions is to bring excellent customer service, I like to deliver the best experience to our clients and make processes as smooth as possible, to give them the service that I would like to receive. In my outside work life, I am a mum of 2 girls and love dancing, especially Peruvian cultural dances.

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Disclaimer: Giovana Paulin (FSP1007277) is a Financial Adviser with Velocity Financial (FSP95466). No investment decision should be taken based on the information in this blog alone. Please see our disclosure statement on our website.

Always get professional advice

The information shared in this post is meant to be general guide to support you on your journey. When making important decisions about your finances, we encourage you to seek independent financial advice first, tailored to your unique situation.  As well as talking with a financial adviser, make sure you talk to your lawyer and accountant too – together they'll help you find the best solution for your specific situation. Our knowledgeable financial advisers are here to help. Check out our website for the details about our financial advisory services in our disclosures  https://www.velocityfinancial.co.nz/disclosure-statement.

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