Pros And Cons Of Using A KiwiSaver To Invest For Your Kids

One way to invest for your kids is to use a KiwiSaver, but like with everything, there is pros and cons to opening a KiwiSaver for kids. Everyone has different values and goals, so it is important to consider all sides to an option and to make an educated decision.

How does KiwiSaver work

As you might already know, KiwiSaver is a retirement savings scheme here in New Zealand.

Some might still think it is a savings account, but it is actually an investment fund.

This means that the fund buys various investments like bonds, property and shares, and when you buy a part of the fund with your contributions from your wages, you buy a portion of everything the fund invests in.

Pros of KiwiSaver for kids

The first pro to using a KiwiSaver for your kids could be a familiar way to start investing for them. After all, most of us working adults already have one.

This might make investing through KiwiSaver feel safer, and all schemes need to meet the criteria in the KiwiSaver Act 2006.

Next pro would be that there are a lot of good tools to compare different KiwiSaver funds to help you choose between them, and find out what kind of fund you should go in the first place.

Sorted for example has different KiwiSaver guides and tools, KiwiSaver Fund Finder and KiwiSaver Calculator.

Mindful Money on the other hand gives you the opportunity of checking what kind of investments different funds hold. This will help you choose a fund that aligns with your values, for example if you don’t want to invest in companies producing weapons or tobacco.

Another pro is that KiwiSaver funds often don’t have minimum contributions. Some other investment funds might have certain required initial investment amount, but KiwiSaver schemes usually don’t, which makes them easier to enter.

Depending on your values, or what you intent the money you invest for you kids to be used for, the fact that KiwiSaver money can only be withdrawn in certain situations might be a benefit.

For example, if you want to invest money for your kids so they could use it as a deposit for their first home, you might be worried that once they have access to it, they will use in on something else.

In this situation if you used KiwiSaver to invest for your kids, the money would be locked by default and could only be withdrawn for a first home deposit, retirement, or in financial hardship.

Last but not least, KiwiSaver funds are automatically diversified, so you don’t need to worry about that at all.

It should also be easy to find a fund that fits your risk profile, without having to think about the individual investments and how they will work within your portfolio and whether they suit your risk profile.

Cons of KiwiSaver for kids

While a KiwiSaver is a great option to invest for your kids, it does have some disadvantages to consider.

One of the main attractions of using a KiwiSaver in the first place is that not only are you investing your own money, but your employer is also putting in a contribution, and once a year, so is the New Zealand government.

Now these benefits don’t exist for kids’ KiwiSaver accounts until your child turns 18.

Even if your teenager had a job, the employer is not legally obligated to contribute until their 18th birthday (although some employers might still do it).

This makes KiwiSaver for kids less attractive and more in par with other investment options out there.

Which leads to the next disadvantage. Without the benefit of extra contributions, KiwiSaver for kids is like other investment options. Except for the fact that it cannot be used for anything else except for your first home deposit, retirement or financial hardship.

This really limits the use of the money, which means it can’t be used for anything else beneficial to your child, like paying for education or starting your business for example.

Your child might not want to buy a house, so the money might end up being locked away until retirement, which could be a shame.

The last con I have is that you don’t have any control on what your child’s KiwiSaver fund invests in.

You can choose your provider and the fund the provider offers, but you have no control over what investments there are in the fund.

For some this might be a restriction, while for others it is a relief.

In summary

KiwiSaver is a great investment option for kids.

But like everything, it has pros and cons that needs to be considered based on your own values and what you want the money you have invested to go towards.

Would you consider opening a KiwiSaver account for your kids? Or if you already have, why did you end up choosing it? I would love to discuss in the comments!