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Our Kids and KiwiSaver

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Is it still worth enrolling kids in KiwiSaver now that the $1,000 “kickstart” has gone? Is it a good place to save for our kids’ futures? With KiwiSaver still so misunderstood, here’s some key information to help you answer these questions for yourselves.

You’re never too young to join KiwiSaver
  • There is no minimum age to join KiwiSaver. The child does need an IRD number, and both parents need to enrol the child if they are under 16. Applications from 16 and 17 years olds need one parent to co-sign with the child.
What are the benefits?
  • Starting to save early is a good financial habit to get into. Relatively small amounts put aside regularly over a long term can, with compound returns, grow into a surprisingly significant lump-sum and set your kids up for their retirements.
  • There is no minimum contribution to KiwiSaver, so if you want to put money in, you can and if you don’t, there’s no obligation.
  • For some this is a benefit, for others not: KiwiSaver members who are under 18 years old must make contributions to their KiwiSaver account at a minimum rate of 3% when they start work, unless tax is not being deducted from their wages. By signing your child up for KiwiSaver, you are therefore ensuring that for at least 12 months of working (after which they can apply for a contributions holiday) they will be getting salary deductions for KiwiSaver. I like this idea of enforced savings for my kids, it’s a good habit to get into (and if I could change their contribution rate to 8% I would as well)!
What are the considerations?
  • Money can only be taken out of KiwiSaver for the purchase of a first home, or at retirement. Well, those are the current rules at least. I always remind parents that rules can change over time and starting a KiwiSaver for an infant with a view that you can start saving for their first home now, is a risky decision. Who know what the rules will be in 20-30 years’ time when that child is looking to buy their first home. Hopefully it won’t change, but it could.
  • Under the age of 18, they do not qualify for Member Tax Credits currently, even if they are working and paying tax. There is also no compulsory employer contribution to KiwiSaver under the age of 18.
  • By enrolling children, you are taking away their personal choice about whether they want to be in KiwiSaver or not, and when deductions will start from their wages. As mentioned above, some believe this is a good thing, but others do not. It’s something to be aware of though.

KiwiSaver is a brilliant retirement savings scheme, which is exactly what it is designed for. It is not a flexible savings scheme for children. They can only access the money for their first home or at retirement, and those rules may change by the time the kids are older. Personally, I believe that KiwiSaver will eventually become compulsory, but only when we start work. If you sign your kids up for KiwiSaver, make sure you know why you’re doing it, and if you’re after a savings vehicle for their university fees or a first car, KiwiSaver isn’t it!

I have been spending time over the last few months visiting local high schools and speaking to the kids there about KiwiSaver. It still frustrates me that financial literacy is not taught in schools. I understand the pressures with curriculum as it stands, but these kids are leaving school and getting enrolled into a KiwiSaver. We are then expecting them to be able to make the right decisions about how to invest their money when they may never have learned about risk, shares, bonds and investment returns. Is it really any wonder that more than 16% of KiwiSaver members are still in the Default Fund (the low risk option we get automatically enrolled into if we don’t set up our own KiwiSaver)?

Ultimately, if we choose to enroll our children in KiwiSaver, we need to make sure that we arm them well to take it over when they turn 16-18; Give them the knowledge they need or tell them where they can get it so that they can manage their money properly for their future.

If you’d like to find out more about KiwiSaver, click here.