We’d all like to give our kids a financial helping hand.
And let’s face it, they’re probably going to need plenty of it, whether with buying a car, putting a roof over their heads or even building on their qualifications.
Parents’ goals for helping their children come in lots of different forms, says Josh Sharp, a Wealth Engagement Manager with Bendigo Bank.
“Education is always a big one. Parents are constantly thinking, OK, in an ideal world, if my kid decides to go to uni, will I be able to assist them financially with that decision?” he says.
“Even before that, you might want to send them to a school where the additional tutoring and extra-curricular activities mean that fees are a bit higher. Do you want to be in a position where you don’t have to take that out of your salary to fund it?”
You might also be thinking about their first car. Or worrying about what property prices are doing at the moment. “That first house deposit is getting larger and larger,” says Sharp. “How are kids going to get into the property market? Is that something you might be able to assist them with in the future?”
Importantly, you don’t necessarily need a specific goal, advises Sharp, who has implemented an investment strategy for his three young children even though he’s not sure what it’s going to be used for yet.
“We just want to be in a position where, if and when they need some assistance in the future, we might be able to help.”
Here’s how you can do it too.
Back in the day, saving was a pretty straightforward process: just keep putting money in a bank account and watch it grow. But that may not be the best approach in the current climate.
“There’s been a major shift,” Sharp explains. “Interest rates are really low, and by saving in a bank account you’re not going to be earning much.”
Bank accounts still have some benefits from a financial literacy point of view: teaching kids to save some of their money by putting it in the bank and watching the balance grow can help establish some good habits.
Another benefit is that bank accounts are typically stable. But if you really want your money to work for you, there may be better ways.
“Now, more than ever, people are looking at alternatives like investing, whether that be in shares, bonds or managed funds, to try and start earning a little bit more on their money,” Sharp says.
If you have a long enough time horizon, options include investing directly in a managed fund – which comprises a mix of different investments, such as shares, property and cash, managed by a professional fund manager.
This gives you a more diversified range of investments. And you can choose from different funds depending on how much risk you are willing to take, but be prepared to commit to such a strategy for at least five years so that markets have time to recover if there’s a significant downturn.
You use the parent’s name as trustee for the child, who would be the beneficiary. “It’s straightforward,” Sharp says. “You just add the child’s name in the title.”
Products that
grow with them
Bendigo Bank offers a range of managed funds, and investing in them is easy – you can get started with as little as $500.
The funds are divided into three groups: defensive/conservative, balanced/moderate, and growth/high growth. There are also various options within those groups. “We’ve got a socially responsible growth fund for those who want to ensure that their money is being invested responsibly, taking into consideration environmental, social and governance factors,” Sharp says.
Which group you choose will largely depend on how much risk you can tolerate. A defensive fund (which might have a high percentage of low-risk investments such as cash and bonds) generally provides lower returns but comes with a lower risk. A growth fund (which might have a high proportion of investment in shares) generally provides higher returns but comes with higher risk.
If you are investing over the long term – say, 10 years –you might be more inclined to choose a high growth option, because you would hope that any bad years would be more than offset by good years. Short-term investors, on the other hand, can’t afford too many bad years, so might choose a more conservative strategy. Other factors to consider include the fees that different managed funds charge.
Bendigo’s Investment Style Selector can help you work out what kind of risk tolerance you have. You can also find out more about investing using resources such as the government’s Moneysmart website, get free general advice from Bendigo Bank wealth experts, or more detailed and personalised advice from a financial adviser.
“I know it’s not always easy to look over the horizon when you’re a parent,” says Sharp, “but try and find the time to do a little bit of research and remember that every investment journey begins with a single step.”
