Investing for kids

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To many parents, having children is a cherished gift that brings a renewed sense of purpose. However, every parent can agree that raising kids is very expensive. It takes great sacrifices to be a winner at it. On every kid’s dream, there is a parent in the background who is working very hard to make it work. Investing for kids on time can make it easy for them to fulfil their goals in life.

Who is supposed to be investing for kids?

Any parent who wants the best for his/her children should have a plan on how they are going to achieve their dreams. It is a common misconception among parents that buying nice gifts for your children is the greatest love you can give. Even though it is your responsibility as a parent to take care of your kids, the greatest love you can show your kids is to invest in/for them.

Many parents I know want the best for their children regardless of whether they are poor or not. They want their kids to attend the best schools, get the best jobs or be successful entrepreneurs. But only few have a clue on how to raise a successful child.

Raising a child is like planting a tree. For it to bear fruits, you need to water it, put manure or fertilizer on it, prune it and remove weeds around it.

Why is investing for kids important?

1) You do not want all your retirement money to be spent on kids

If you remove kids from your personal investment equation, you will wake up to the fact that you have nothing for yourself. Their education and dreams will be feeding on your retirement savings leaving you with nothing to show for your many years of hard work.

So it makes sense for your retirement investments to be separated from kids investments.

2) You want them to have seed money for their businesses

I often question the “self-made millionaire” tag. For a person to be really successful, he/she needs a very good support system which may be interest free loans or seed money from parents or guardians or friends or even well wishers.

As a parent, you can prepare for your child’s future business endeavors by investing for them when the idea is not even born yet. This will ensure that their ideas are not hindered.

3) You want your kids to create their own greatness

The best way to raise great men or women is to give them a favorable environment for them to thrive on their own. Living behind inheritance for your kids is not a good idea if they do not know how to make their own money.

By passing on your skills and expertise to your kids, you are setting up a generational legacy. Your wealth will be in safe hands if you invest in making your children better and making sure you invest in their strength.

4) You want them to achieve greatness in your absence

Noone knows the future. We just have to prepare for whatever outcome we get. As a parent, think about your children.

What are they going to do without you? Can they still go to school? Can they still start their own businesses without being crippled by the lack of capital?

A wise parent will give his/her children a head start on everything. Equip them with everything they need to survive in your absence.

What can parents do to invest in/for their kids?

To answer this question, parents need to understand who they are and why they are investing for kids.

Knowing who you are as a parent will ensure that you clearly know your:

• risk appetite
• age
• marital status
• financial status of your partner
• children’s age, gender or aspirations etc.

The step of knowing why you are investing for kids is very important. Remember a short term need require you to save the money while a long term need require you to invest the money.

Furthermore, goals like providing capital for your kids’ businesses or university education may take many years to be achieved if the kid is still below 5 years of age. So it makes a lot of sense to invest this money in assets like Stocks, Exchange Traded Funds (ETFs), Properties etc.

Goal examples	Time until it’s achieved	Investment type
Raising capital for the kids’ businesses	Long term	Stocks, ETFs, Properties, Real Estate Investment Trusts (REITs), Unit Trusts etc.
Children’s University education	Long term	Stocks, ETFs, Properties, Real Estate Investment Trusts (REITs), Unit Trusts etc.
Children’s Creche	Short Term	Saving e.g Money Market Unit Trust, Notice Deposits etc

In South Africa, there is an opportunity to invest in stocks, ETFs and Property for your kids using Easy Equities. There is also an opportunity to use ETFs in your kid’s Tax Free Savings Account (TFSA).

Do you know that with consistency, discipline and patience, no any investment amount is too small for your kids?

Let us assume that you are investing R500 every month for your new born. If you are investing in an ETF with annualized return of 10% then by the time your kid turns 18 you will have approximately R300k to invest in your kid’s business ideas. If you increase this contribution with inflation, the future value of the investment will even be more.

Conclusion

Investing for kids is very important if you are planning on raising great children. Many dreams have been hindered because the parents did not have enough investments for their kids. Others retired with nothing because their children used all their retirement savings. Children are expensive so parents need to have a solid financial plan.

Important articles:

• First time investing – how and what to invest in
• Know the company before buying its stock
• How to build a habit of saving and investing