A Fund for Your Child

Thursday, February 20th, 2020


Becoming a parent for the first time, is one of life’s highlights. Parenthood comes with a mixture of emotions ranging from joy to fear, with a dash of physical exhaustion thrown in. It is a tumultuous time, but the toughness of it all is offset by overwhelming love and a desire to do the absolute best to give a precious new being a good start in life.

For many parents, and even grandparents, making provision for a child’s financial future is an important part of parenting. What better start for a young adult than to be given a fund which can be used for education, buying a first home, or embarking on an overseas adventure?

There are a number of options for setting up a fund for a child:

  1. Setting up a KiwiSaver fund for the child. Children are not eligible for Government tax credits or employer contributions until they turn 18, however KiwiSaver can provide a low-cost savings vehicle which can later be used to help buy a first home. The disadvantage of KiwiSaver for children is that the funds are locked in and can only be used for a first home or for retirement.
  2. Making contributions into a diversified fund which is not locked in. The performance of the fund will be similar to KiwiSaver but with the advantage that funds can be withdrawn at any time, for any purpose. At the same time this can be a disadvantage as discipline is needed to not raid the fund for unintended purposes.
  3. Contribute funds into an offset account at the bank. The balance of the account can be offset against a floating mortgage so no interest is paid. Funds are highly accessible and in effect provide a guaranteed after-tax return equivalent to the mortgage interest rate.

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