Last year my husband and I had our first son. Our much loved baby! As soon as he was born we started thinking about how we were going to invest for him.

Our goal is for him to have a nest egg and provide him some security. We hope (and will do the work for that) that he will be financially literate enough to take care of it and continue to grow his investments. He will be able to decide in the future if some of it will go towards his education, perhaps towards a house, or stay invested and continue to grow.

My husband and I decided that he is going to take care of his Kiwisaver (we are in New Zealand),  and I am going to take care of his investments. Talking to other mums, I know that many are not comfortable with investing. Also, I would guess that most children don’t have an investment account. Hopefully this article will help you get started.

Why invest for my children?

Do you wish your parents had started investing for you when you were little (if they didn’t, of course)? I think most people would. Having investments can give children security and future opportunities.

I 100% think that children need to learn about finances and learn to work and go after what they want. But I also think having some seed money can help them get started in life and provide peace of mind. I honestly don’t see a downside.

How much should I invest?

In personal finance, the amount you should invest is always related to your goals. Do you have a specific goal in mind for your child? Are you investing to help them buy a home when they reach a certain age? Or are you investing to reach a certain amount in a specific amount of time? Thinking about these things will help you determine how much you should invest.

In saying this, personally I think that parents should consider 2 factors when they are deciding how much to invest for their children:

• How much are you able to comfortably invest each month?

Even if your end goal is to achieve a high amount for your children, consider how much you can comfortably invest each month. It’s better to invest less and actually do it, than to plan to invest all this money only to see that you are not actually able to do it.

If you are comfortable that you can invest a modest amount, great. Commit to that. If along the way you can invest more, great, but if not, at least do what you committed yourself to doing.

• How much can you commit to investing long term?

Remember that investing for your children is a long term plan. When deciding the amount that you can comfortably invest, remember to consider how your situation could change. Perhaps you can comfortably invest a certain amount now, but are you confident that you can continue to do that in the long term?

There is nothing wrong with investing more now and less later. However, I would suggest committing to investing the smaller amount now, automate it, and then invest whatever you want on top of that. This is a long term plan, you want to set and forget as much as possible to make sure that it gets done. You might not be able to set and forget if you set an amount that is soon to be too high.

The amount I like to invest for my son is a percentage of my earnings. This way I can invest more when my income is higher and less when it’s lower without changing the plan. You can set up a spreadsheet that will show you how much to invest each month.

Where should I invest?

I am not able to tell you specific funds or companies in which to invest your children’s funds. This is something that you need to do yourself (or with the help of an advisor). But I can say this:

• Consider your risk profile.
• Consider your timeline. How old are your children? How much time do they have before they need to access the funds?
• Remember that this is a long term plan. Be careful not to be too conservative and miss out on better long-term returns.
• Make it easy on yourself. Unless you really want to manage your child’s investments frequently, consider investments that are mostly hands off.

How do I invest for my son? At the moment 100% of his investments (not Kiwisaver) are  in a total world ETF (FTSE Global All Cap Index). Here in New Zealand do it through Superlife.

I also plan to buy some dividend-paying shares over time. I am comfortable with this investment strategy for my child, but of course you need to decide what is best for your family.

Automate, but have wiggle room

If you don’t love managing investments and/or do not have time for that, you should definitely automate as much as possible. You can set up a direct debit from your account as soon as you get paid, so you don’t even need to see the money that before it goes to their investments.

I don’t set up a direct debit from my account, but I do have a spreadsheet that automatically calculates the dollar amount (based on my chosen percentage) each fortnight. Then I simply make the transfer when I’m looking at my finances. This works well for me, but I definitely recommend that most people go for a more hands-off approach.

In saying this, I would suggest having some wiggle room rather than automating 100% of your child’s investments. This is so as they get older, they can be more hands-on and make more of their own financial decisions. See below.

Let them participate

Automating your child’s investment makes it easier to keep it up over the long term. However, make sure to have a little wiggle room so that they can participate as well. Perhaps you can choose where the bulk of their investments goes, but they can manage a percentage of it.

Teach them how to choose their investments, decide which stocks to buy, how to buy stocks, watch the dividends come into their account, etc. Hopefully this can be a fun experience for them.

When should my children access their investments?

This is another question that can only be answered by you. Remember that the answer to this question will also influence where their investments should go. But generally, the older they are, the less guidance they should need about what to do with their funds. Some parents choose to give them access to their funds when they turn 18, others a bit later at perhaps 25.

The reason we are investing for our son is so he can have some security and options as he grows older. We are not investing so he can blow everything in his twenties 🙂

The key thing is teaching the children about money, so that they can make wise decisions. For us, the decision about when he will be able to access his funds is not set in stone. We plan to help him become financially literate, and guide him through his decisions as he gets older, rather than handing him the cash and wishing him good luck.

If you follow the previous suggestion and your child is already helping to manage their investments, a good idea is to over time increase the percentage that they control. Perhaps with each birthday they can control a little bit more.

Also take into account that if your child has a retirement account such as Kiwisaver, there are only a few situations in which they will be able to withdraw their cash. Kiwisaver accounts don’t usually allow more hands-on management. I like having a Kiwisaver account as well as other investments.

Do you invest for your children? How do you do it? Let me know in the comments 🙂