How to build up a rainy day fund for your children.
The lockdown made many of us pause and think about what’s really important in our lives – like our family’s financial security.
Money experts often recommend stashing away enough money to cover at least three months’ expenses. It may seem like a big ask, but the pandemic has shown how important it is to have a buffer to get us through tough times.
It’s never too late to start a rainy day fund – and not just for ourselves, but for our children too.
When you’re busy coping with the day-to-day demands of being a parent, there isn’t much time to think about your child’s future.
But before you know it, your children will be almost grown up. And that’s when the really big expenses kick in.
Buying a car, taking a gap year, getting an education, taking the first step on the housing ladder – just a few of the milestones you might want to help your children with. You might also want to give them a safety net to cope with the kind of financial shock so many Kiwis are going through now.
If you’ve been left with unplanned savings after spending less than usual during lockdown, now might be the time to start thinking how you can use your nest egg for your children’s future.
Will KiwiSaver be enough?
Your first step might be to set your children up with a KiwiSaver account.
Just over 10,000 New Zealanders aged 17 or under were enrolled in KiwiSaver by the end of March 2019.
A KiwiSaver account can be a great head start for young people fortunate enough to be able to use it to buy their first home. But that won’t be everyone.
Nearly half of Kiwis aged 18-34 don’t expect to own their own home by the time they retire, and only 30% think they’ll have NZ Super at retirement, according to a report by the Financial Services Council.
And even if your children are able to use their KiwiSaver to buy a property, that will likely be their only opportunity to withdraw funds till they turn 65.
If you’d like to help your children out before then, one option is a managed fund.
Kickstarting your children’s investments
Managed funds can be a great way for beginners to start investing. Your money is spread out across a range of investments and managed by a team of experts.
You can choose a fund depending on how comfortable you are with risk and how long you want to wait before withdrawing your money.
The three big advantages of managed funds are that they’re flexible, accessible and have the potential to generate higher returns than a savings account or term deposit.
You can open a Kiwi Wealth Managed Fund on behalf of your child for just $100, and make regular contributions for as little as $1.
Managed funds are a smart way to save for the goals you have for your children because you can make investments or withdraw money to help them when you want to.
So you can respond to your children’s financial needs as they grow, whether that’s paying for university or setting them up with an emergency fund to help them cope with the great unknowns ahead.