Part One: An Introduction to Investing in Shares for Your Kids
This is the first article in Crayon’s mini-series on investing for your kids. Throughout this series, we’ll explore how it could work for your family and give you a few tips from our experts to make it easy, actionable and effective.
When my mother-in-law told me that she was stashing a little money away every month for each grandchild, the first thing I wanted to do was hug her. The second was to ask her to redirect it to an investment account.
A lot of parents hope to put a little money away to help their children in the future. It’s a wonderful idea to get a head start on life-long savings.
But how about, instead of putting that money away you put that money to work in shares?
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When you buy a share, you’re purchasing partial ownership of a company. For example, when you buy an Air New Zealand share, you become a (very small) owner of Air New Zealand!
A company’s share price reflects how investors think the company will perform in the future. You can benefit when the company performs well and you can lose money when it doesn't.
Shares are also referred to as “stocks” or “equities”.
Little investments add up
Like many things in life, little habits can lead to big change…or in the case of investments, potentially big cash for your kids.
Say you put away $20 every week from the time they’re born (less than what most Kiwis spend on coffee each week). Over 18 years, you will have stashed away almost $19,000.
If you left this in a bank account earning 3% interest per year, it’d be worth just shy of $25,000.
If instead, you invested it in the NZ share market and it returned 7% on average each year, then it would be worth just over $37,000 - almost double what you put in. Keep in mind that investing comes with more risks than leaving the money in the bank, which we cover in this series.
Choose your investment adventure
This coffee change could be life-changing.
In 18 years time, this money could help your kids graduate from university debt-free, jump-start their house deposit savings, fund a business idea or take that long-awaited OE trip.
We don’t know what adventures your kids will embark on, but we do know that investing while they’re young can potentially give them a huge head start.
Where do I start?
At Crayon, we’re all about little moves with big impact. If you’re eager to start squirrelling away that coffee change, here’s how to take the first steps on your investing journey:
Use our Crayon Kids Investment Simulator to figure out what your investment could be worth by the time your kids are taller than you!
Check out Part Two of our series on the fundamentals of long-term investing so you’re primed to be a great custodian of your child’s investment.
Consider a long-term investing routine that works for your family. This could be a conversation with your partner about what you can afford to invest on an ongoing basis.
Work out together what that routine looks like, e.g. “We aim to invest $50 every month for the next 7 years.”
This is part of Crayon’s mini-series on investing in shares for your child:
Now for the important legal part: Investing involves risk. You aren’t guaranteed to make money and you might lose the money you start with. The information we provide is general and not regulated financial advice for the purposes of the Financial Markets Conduct Act 2013. Please seek independent legal, financial, tax or other advice in considering whether the content in this article is appropriate for your goals, situation or needs. The information in this article is current as at 25 October 2022.
Stephanie Pow
Founder and CEO, Crayon
