Get a head start for your children
Would you like to create a nest egg for your children?
It is becoming more and more difficult for young people to buy a house without help from their parents. And future generations may have to rely solely on their own money to fund their retirement. So building a nest egg for your children has become more important than ever.
What you need to know
- The effect of compounding means the earlier you start investing for your children, the easier it is to create wealth. So it makes sense to put in place a regular savings and investment plan.
- You can start making superannuation contributions for your children while they are still under 18. Generally no tax deduction is available; however with the benefit of compounding, a relatively small contribution at birth can grow into a significant nest egg by the time the child reaches retirement.
- For example, if you were to contribute $1,000 per year from birth to age 16 (a total of $16,000), by the time your child reaches age 60 the nest egg would have grown to $66,595 in today’s dollars (assuming inflation of 3% and a gross 7% annual return). A very handy head start for retirement!
Consider investing in your name rather than your child’s name. In most cases, investing in the name of a child is inefficient for tax purposes, as penalty tax rates apply to ‘unearned’ income for people under 18.
A Financial adviser can help you:
- Start saving for your children’s future